Mercantile Bank Corporation CEO Discusses Q3 2010 Results - Earnings Call Transcript

Mercantile Bank Corporation CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Mercantile Bank Corporation (

MBWM

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Q3 2010 Earnings Call Transcript

October 19, 2010 10:00 am ET

Executives

Mike Price – President and CEO

Chuck Christmas – CFO, SVP

Bob Kaminski – COO, EVP, Secretary; President

Analysts

Stephen Geyen – Stifel Nicolaus

Terry McEvoy – Oppenheimer & Co.

John Barber – Keefe, Bruyette & Woods

Greg Dodgson – Royal Securities

Eric Reboulet [ph]

Presentation

Operator

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» Mercantile Bank Corporation Q3 2009 Earnings Call Transcript

Welcome to the Mercantile Bank Corporation third quarter earnings conference call. There will be a question and answer session at the end of the presentation. (Operator instructions)

Before we begin today’s call, I would like to remind everyone that this call may involve certain forward looking statements such as projections of revenue, earnings and capital structure, as well as statements on the plans of objectives of the company or its management, statements on economic performance and statements regarding underlying assumptions of the company’s business. The company’s actual results could differ materially from any forward looking statements made today due to important factors described in the company’s latest Securities and Exchange Commission filings. The company assumes no obligations to update forward looking statements made during this call. If anyone does not already have a press release issued by Mercantile today, you can access it by the Company’s website, www.mercbank.com

On the conference, today from Mercantile Bank Corporation we have Mike Price, Chairman and President and Chief Executive Officer, Bob Kaminski, Executive Vice President and Chief Operating Officer, Chuck Christmas, Senior Vice President and Chief Financial Officer.

We will begin today's call with management's prepared remarks and open up the call for questions. At this point, I will turn the call over to Mr. Price to begin. Please begin.

Mike Price

Thank you, and good morning everyone and welcome. And while our income statement continued to show distress of elevated provisioning and bad debt expense, our third quarter results had some very positive important trends. The improvement in past due in non-performing loans that initially surfaced in the second quarter picked up tremendous momentum. Non-performing loans and ORE were down significantly for the quarter and since we have painfully learned that the level of nonperformers is a good indicator of future credit costs, this reduction is a very positive sign for the quarters ahead. Bob Kaminski will detail the dynamics of our loan portfolio and the provision for loan-loss during his comments but at this time I'm going to turn it over to our CFO, Chuck Christmas.

Chuck Christmas

Thanks Mike. Good morning everybody. This morning we announced that we recorded a net loss of $5.7 million during the third quarter of 2010 compared to a net loss of $5.6 million during the third quarter of 2009 and a net loss of $9.3 million during the first nine months of 2010 compared to a net loss of $16.5 million during the first nine months in 2009. On a pre-tax basis which we believe provides a more accurate comparison of our operating results given the change in our tax position over the last couple of years, our net loss from the third quarter of 2001 was $6.1 million compared to a net loss of $9 million during the third quarter of 2009 and our net loss from the first nine months of 2010 was $10.4 million compared to a net loss of $25.9 million during the same time period in 2009.

While we are of course disappointed any time we have to report a net loss, we are encouraged with the significant improvement in our operating results as well as the continued improvement in many key areas of our financial condition and performance. Our financial performance during 2010 like that throughout 2009 and 2008 has been impacted by a significant provision expense. Unfortunately, continued state, regional, and national economic struggles have negatively impacted some of our borrowers' cash flows and underlying collateral values, leading to increased non-performing assets, higher loan charge-offs, and increased overall credit risk within our loan portfolio when compared to historical norms.

From the time we sensed economic weakness over two years ago, we have been working with our borrowers to develop constructive dialog, which has strengthened our relationships and enhanced our ability to resolve complex issues. With the environment for the banking industry likely to remain stressed until economic conditions improve, credit quality will continue to be our major concern. We will remain relentlessly vigilant in the identification and administration of problem assets.

Unfortunately, provision expense as well as nonperforming asset administration resolution costs will likely remain higher than historical levels, dampening future earnings performance. But during the third quarter of 2010, we saw the continuation of the very positive trends we have reported for the first and second quarters of 2010 and throughout 2009 as well, and I'd like to touch on some of them with you this morning.

Despite a reduction in our total earning assets, an improved net interest margin has provided for increased net interest income. Net interest income during the third quarter of 2010 was $400,000 higher or 3 percent than the third quarter of 2009 and during the first nine months of 2010 our net interest income was $4.8 million or 13 percent higher than during the first nine months of 2009. Our net interest margin during the third quarter of 2010 was 3.33 percent compared to 2.85 percent during the third quarter of 2009, an improvement of 48 basis point or 17 percent. The improvement is primarily due to the significant decline in our cost of funds. While we expect further reductions in our cost of funds in future periods it will likely be at a much slower pace than during the past couple of years.

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