Charles ChristmasThanks, Mike, and good morning, everybody. This morning we announced that we recorded net income of $1.1 million during the first quarter of 2011 compared to a net loss of $3 million during the first quarter of last year. This $4.1 million improvement, which expands to $5.2 million, if we excluded federal income tax benefit and one-time investment and loan sales gains recorded during the first quarter of last year, results from improvement in many key areas of our financial condition and operating performance, but especially reflected significantly lower provision expense and a record high net interest margin. We are, of course, pleased to be able to report net profit to the first quarter of 2011. Our first profitable quarter after two years of quarterly losses, reflecting improved economic conditions combined with a positive impact of numerous strategies, developed and implemented over the past several years. Decline in nonperforming asset levels, a pruned loan portfolio along with honed credit underwriting and administration practices, a record high net interest margin, lower controllable overhead costs and improved liquidity position through substantial local deposit growth and dramatically reduced reliance on wholesale funding and a strong and improved in regulatory capital ratios provide us with cautious optimism as we look to our future earnings performance and overall financial condition. Yes, much more work lies ahead and many headwinds continue to face Mercantile, the banking industry and the economy at all levels. However, we believe we are well positioned to succeed to the strong community bank and continue to play a pivotal role within the markets that we serve. During the first quarter of 2011, we saw the continuation of the very positive trends we reported during all of 2010 and throughout most of the 2009 as well and I'd like to touch on some of them with you this morning.
An improved net interest margin has provided substantial support to net interest income that has been negatively impacted by the decline in earning assets. Net interest income during the first quarter of this year was $13.4 million or about a 6% lower than the first quarter of last year. Average total earnings assets declined by about $305 million between the first quarter of this year and the first quarter of last year. However, our net interest margin increased from 3.25% to 3.64% or about 12% during the same time period. The improvement is primarily due to a decline in our cost of funds but also reflects a relatively stable yield on assets, resulting from the many strategic initiatives we have successfully implemented within the commercial loan function.Provisions for the reserve totaled $2.2 million during the first quarter of 2011, a substantial decline from the $8.4 million we expensed during the first quarter of last year and well below the average quarterly provision amount during the past three years. Our loan loss reserve was $42.1 million at the end of the first quarter or almost 3.5% of total loans. A year ago, total loss reserve equaled 3.35% of total loans. Local deposit and sweep accounts were up $55 million during the past 12 months and are up almost $275 million since the end of 2008. Combined with the reduction in our loan portfolio, we have been able to reduce our level of wholesale funds by about $840 million since the end of 2008. As a percent of total funds, wholesale funds have declined from 71% at the end of 2008 to 40% at the end of the first quarter. Overhead cost reduction strategy have been realized. Salaries and benefits, occupancy and furniture and equipment costs declined $0.5 million or about 8% during the first quarter of 2011 compared with the first quarter of last year, and are down $1.6 million or almost 23% when compared to the first quarter of 2009. Read the rest of this transcript for free on seekingalpha.com