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MTL - Mercantile Bank Holdings Limited - Condensed Unaudited interim results for the six months ended 30 June 2010 MERCANTILE BANK HOLDINGS LIMITED Member of the CGD Group ("the Group") Registration number 1989/000164/06 Share code: MTL ISIN: ZAE000064721 SALIENT FEATURES Growth in NAV per share of 10.7% Headline earnings down by 32.0% Net recovery in credit impairments CONDENSED UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2010 FINANCIAL OVERVIEW The Group recorded a decrease of 32.0% in headline earnings for the six months ended 30 June 2010 compared to the six months ended 30 June 2009. This decline is mainly attributable to: a decrease in net interest income (before credit losses) of 7.7% as a result of the negative endowment effect on the Group`s significant capital base and other non-interest-bearing deposits; the general lower level of business activity in the reporting period with loans and advances increasing by 1.9% and deposits by 3.3%; a decline in net non-interest income of 20.1%, primarily due to the termination by Woolworths Financial Services of its card processing agreement in October 2009 following the sale of a controlling stake in its financial services business to a competitor bank; and an increase in operating expenditure of 10.4% largely driven by a higher depreciation charge following the implementation of a new core banking system. A net recovery of credit impairments reflects the ongoing sound performance of the loans and advances book. Cost to income increased from 49.7% in June 2009 to 63.1% in June 2010 whilst both ROE at 7.6% (June 2009: 12.6%) and ROA at 1.9% (June 2009: 2.9%) declined reflecting the weaker market conditions, a higher systems cost base and lower earnings of the Group. CREDIT RATINGS Moody`s Investors Service confirmed the following RSA national scale issuer ratings of Mercantile Bank Limited on 11 June 2010: Short term P-1.za Long term A2.za Outlook Stable ACCOUNTING POLICIES These condensed consolidated financial statements have been prepared under the historical cost conventions excluding financial instruments and properties which are fair valued and the accounting policies are in accordance with International Financial Reporting Standards. These condensed financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements as were applied in the preparation of the Group`s financial statements for the financial year ended 31 December 2009. The interim results have not been reviewed or audited by the Group`s auditors. GOING CONCERN The financial statements have been prepared on the going concern basis. BLACK ECONOMIC EMPOWERMENT AND MERGER NEGOTIATIONS Discussions with the two short-listed candidates for the sale of 10% of the Group`s equity have been deferred pending the outcome of the proposed merger negotiations underway with Sasfin Holdings Limited. NEW BANKING SYSTEM The new core banking system went live in April 2010 at a cost of R242 million. DIRECTORATE Mr K R Kumbier was appointed as Executive Director: Finance and Business with effect 1 June 2010. Ms A de Villiers was appointed as company secretary with effect 1 January 2010. OUTLOOK The ongoing uncertainty in the rate of recovery in local and global markets makes the remainder of 2010 challenging. In addition, the termination of the Woolworths Financial Services card processing agreement will continue to place pressure on fee income. Cost pressures will in turn be experienced with the ongoing depreciation charge for the new banking system. The outlook for the Group over the medium term remains positive. J A S de Andrade Campos D J Brown Chairman Chief Executive Officer Condensed consolidated statement of financial position 30 June 30 June 31 December 2010 2009 2009
R`000 R`000 R`000 Unaudited Unaudited Audited ASSETS Intangible assets 218 349 125 171 170 325 Property and equipment 128 477 125 641 131 483 Tax 26 - 256 Other accounts receivable 112 181 40 585 29 539 Other investments 21 312 12 121 23 590 Deferred tax assets 82 052 125 104 102 936 Non-current assets held for sale 3 234 3 234 5 510 Loans and advances 3 737 952 3 667 891 3 629 574 Derivative financial instruments 15 498 71 279 21 406 Negotiable securities 261 555 293 112 267 902 Bank term deposits 243 372 93 277 35 276 Cash and cash equivalents 1 129 091 1 080 317 1 400 937 Total assets 5 953 099 5 637 732 5 818 734 EQUITY AND LIABILITIES Shareholders` equity 1 492 203 1 350 606 1 437 671 Share capital and share premium 1 202 571 1 202 571 1 202 571 Share-based payments reserve 2 613 5 170 1 894 Property revaluation reserve 52 708 46 364 52 708 Available- for-sale reserve 11 374 10 551 13 883 Capital redemption reserve fund 3 788 3 788 3 788 General reserve 7 478 7 478 7 478 Retained income 211 671 74 684 155 349 Non-current liability Deferred tax liabilities 19 747 14 854 18 870 Liabilities 4 441 149 4 272 272 4 362 193 Deposits 4 281 326 4 143 743 4 246 598 Derivative financial instruments 15 322 22 693 16 230 Provisions 29 525 28 937 38 142 Other accounts payable 114 976 76 415 61 153 Tax - 484 70 Total equity and liabilities 5 953 099 5 637 732 5 818 734 Condensed consolidated statement of comprehensive income Six months Six months 12 months ended ended ended 30 June 30 June 31 December 2010 2009 2009
R`000 R`000 R`000 Unaudited Unaudited Audited Interest income 224 358 291 684 529 584 Interest expense (95 361) (151 891) (261 315) Net interest income 128 997 139 793 268 269 Net recovery of/(charge for) credit losses 864 (6 749) (9 323) Net interest income after credit losses 129 861 133 044 258 946 Net gain on disposal of available-for-sale investments 885 1 583 1 583 Net non-interest income 79 758 99 814 200 059 Non-interest income 125 271 138 290 287 909 Fee and commission expenditure (45 513) (38 476) (87 850) Net interest and non-interest income 210 504 234 441 460 588 Operating expenditure (132 346) (119 872) (247 578) Operating profit 78 158 114 569 213 010 Share of income from associated company - - 4 059 Profit before tax 78 158 114 569 217 069 Tax (22 307) (32 172) (54 867) Profit after tax 55 851 82 397 162 202 Other comprehensive (loss)/income Revaluation of owner-occupied properties - - 8 812 (Losses)/Gains on remeasurement to fair value (2 033) (1 308) 2 576 Release to income on disposal of available-for-sale financial assets (885) (1 583) (1 583) Tax relating to other comprehensive loss/income 409 406 (2 614) Other comprehensive (loss)/income net of tax (2 509) (2 485) 7 191 Total comprehensive income 53 342 79 912 169 393 Profit after tax attributable to: Equity holders of the Group 55 851 82 397 162 202 Total comprehensive income attributable to: Equity holders of the Group 53 342 79 912 169 393 Earnings per ordinary share (cents) 1.4 2.1 4.1 Diluted earnings per ordinary share (cents) 1.4 2.1 4.1 Headline earnings Restated reconciliation between profit after tax and headline earnings (1) Profit after tax 55 851 82 397 162 202 Adjustment for non-headline items: Realisation of available-for -sale reserve on disposal of investments (885) (1 583) (1 583) Loss on disposal of property and equipment - 14 14 Tax on non-headline items (1) 124 218 218 Restated headline earnings (1) 55 090 81 046 160 851 Headline earnings per ordinary share (cents) 1.4 2.1 4.1 Diluted headline earnings per ordinary share (cents) 1.4 2.1 4.1 Financial statistics 30 June 30 June 31 December
2010 2009 2009 Unaudited Unaudited Audited Number of ordinary shares in issue: - end of the period (`000) 3 911 114 3 911 114 3 911 114 - weighted average (`000) 3 911 114 3 911 114 3 911 114 - weighted average - diluted (`000) 3 936 208 3 911 114 3 928 895 Return on average equity (%) 7.6 12.6 12.0 Return on average assets (%) 1.9 2.9 2.8 Cost to income (%) 63.1 49.7 52.7 Net asset value per ordinary share (cents) 38.2 34.5 36.8 Tangible net asset value per ordinary share(cents) 32.6 31.3 32.4 Condensed consolidated statement of changes in equity Six months Six months 12 months
ended ended ended 30 June 30 June 31 December 2010 2009 2009 R`000 R`000 R`000
Unaudited Unaudited Audited Share capital and share premium Balance at beginning and end of the period 1 202 571 1 202 571 1 202 571 Share-based payments reserve Balance at beginning of the period 1 894 4 650 4 650 Share-based payments expense 719 520 (2 756) Balance at end of the period 2 613 5 170 1 894 Property revaluation reserve Balance at beginning of the period 52 708 46 364 46 364 Other comprehensive income - - 8 812 Tax relating to other comprehensive income - - (2 468) Balance at end of the period 52 708 46 364 52 708 Available-for- sale reserve Balance at beginning of the period 13 883 13 036 13 036 Other comprehensive (loss)/income (2 918) (2 891) 993 Tax relating to other comprehensive loss/income 409 406 (146) Balance at end of the period 11 374 10 551 13 883 Capital redemption reserve fund and general reserve Balance at beginning and end of the period 11 266 11 266 11 266 Retained income/(Accumulated loss) Balance at beginning of the period 155 349 (8 857) (8 857) Profit after tax 55 851 82 397 162 202 Share-based payments expense 471 1 144 2 004 Balance at end of the period 211 671 74 684 155 349 Total equity Balance at beginning of the period 1 437 671 1 269 030 1 269 030 Share-based payments expense 1 190 1 664 (752) Profit after tax 55 851 82 397 162 202 Other comprehensive (loss)/income net of tax (2 509) (2 485) 7 191 Balance at end of the period 1 492 203 1 350 606 1 437 671 Condensed consolidated statement of cash flows Six months Six months 12 months ended ended ended 30 June 30 June 31 December
2010 2009 2009 R`000 R`000 R`000 Unaudited Unaudited Audited Net cash (outflow)/inflow from operating activities (212 572) (332 947) 41 241 Net cash (outflow) from investing activities (59 274) (51 695) (105 263) Net cash (outflow) for the period (271 846) (384 642) (64 022) Cash and cash equivalents at beginning of the period 1 400 937 1 464 959 1 464 959 Cash and cash equivalents at end of the period 1 129 091 1 080 317 1 400 937 Condensed Group segmental information Six months Six months 12 months
ended ended ended 30 June 30 June 31 December 2010 2009 2009 R`000 R`000 R`000
Unaudited Unaudited Audited Segment revenue net of fee and commission expenditure Revenue from external customers Retail and Commercial banking 136 225 145 325 291 779 Treasury 29 602 25 202 45 224 Alliance banking, MBL credit card and electronic banking 15 823 33 672 63 055 Other services (2) 27 990 36 991 69 853 209 640 241 190 469 911 Segment result - operating profit (3) Retail and Commercial banking 89 114 96 407 197 583 Treasury 19 181 14 247 25 888 Alliance banking, MBL credit card and electronic banking 3 429 21 354 39 583 Other services (2) (33 566) (17 439) (50 044) Operating profit 78 158 114 569 213 010 Share of income from associated company - - 4 059 Profit before tax 78 158 114 569 217 069 Tax (22 307) (32 172) (54 867) Profit after tax 55 851 82 397 162 202 Material related party balances and transactions 30 June 30 June 31 December 2010 2009 2009
R`000 R`000 R`000 Unaudited Unaudited Audited Net balances with Caixa Geral de Depositos S.A. 442 488 702 220 614 222 Interest received from Caixa Geral de Depositos S.A. 550 8 423 10 518 Condensed Group contingent liabilities and commitments 30 June 30 June 31 December 2010 2009 2009
R`000 R`000 R`000 Unaudited Unaudited Audited Guarantees, letters of credit and committed undrawn facilities 411 502 577 134 506 678 Operating lease commitments 9 380 11 108 24 355 Capital commitments 16 251 66 733 51 628 Explanatory notes (1) The tax effect on non-headline items was omitted for June 2009 but reported HEPS remained unchanged. (2) Other services includes support divisions, surplus capital, insurance brokers and inter-group eliminations. (3) Segment results represent the operating profit earned by each segment without the allocation of tax or attributable support costs. This is the measure reported to the chief operating decision-maker for the purposes of resource allocation and assessment of segment performance. Directors: J A S de Andrade Campos* (Chairman), D J Brown (Chief Executive Officer), K R Kumbier (Executive), J P M Lopes* (Executive), L Hyne, A T Ikalafeng, G P de Kock, T H Njikizana, S Rapeti * Portuguese Zimbabwean Group secretary: A de Villiers Sandton 29 July 2010 Registered office: Mercantile Bank, 142 West Street, Sandown, 2196 Transfer secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001 Sponsor: Bridge Capital Advisors (Pty) Limited, 2nd Floor, 27 Fricker Road, Illovo, 2196 www.mercantile.co.za Date: 29/07/2010 14:50:36 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
