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Mercantile Bank Corporation$32.14$1.113.58%

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 Mercantile Bank Corporation Announces Strong Fourth Quarter and Full Year 2017 Results
   Tuesday, January 16, 2018 6:01:00 AM ET

Mercantile Bank Corporation (MBWM ) ("Mercantile") reported net income of $8.0 million, or $0.48 per diluted share, for the fourth quarter of 2017, compared with net income of $8.1 million, or $0.49 per diluted share, for the respective prior-year period. For the full year 2017, Mercantile reported net income of $31.3 million, or $1.90 per diluted share, compared with net income of $31.9 million, or $1.96 per diluted share, for the full year 2016.

Excluding the impacts of certain noncore transactions, diluted earnings per share during 2017 and 2016 equaled $1.89 and $1.76, respectively. These transactions included a Bank-owned life insurance death benefit claim in the first quarter of 2017, the revaluation of Mercantile’s net deferred tax asset in response to the Tax Cuts and Jobs Act becoming law in December of 2017, the repurchase of trust preferred securities at a discount in the first quarter of 2016, and accelerated purchase discount accretion on called U.S. Government agency bonds during 2016.

The fourth quarter and full year were highlighted by:

-- Strong core earnings and capital position

-- Stable and robust net interest margin

-- Solid growth in various fee income categories

-- Controlled overhead costs

-- Strong asset quality, as depicted by low levels of nonperforming assets and loans in the 30- to 89-days delinquent category

-- Total loan growth of $180 million, or nearly 8 percent, during the full year

-- New commercial term loan originations of approximately $119 million during the fourth quarter and $529 million during the full year

-- Sustained strength in commercial loan pipeline

-- Announced first quarter 2018 regular cash dividend of $0.22 per common share, an increase of approximately 16 percent from the $0.19 regular cash dividend paid during the fourth quarter of 2017

"Our strong 2017 financial results reflect the success of various ongoing strategic initiatives," said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. "Our focus on net interest margin maintenance, enhanced fee generation, and overhead cost control played a key role in our demonstrated solid operating performance throughout all of 2017. We are very pleased with the level of loan growth during the year, which was achieved in a disciplined manner and in spite of competitive pressures, and our continuing strong asset quality. Based on our overall financial strength and current loan pipeline and prospects, we are well-positioned to participate in the economic strength of our markets during 2018."

Operating Results

Total revenue, which consists of net interest income and noninterest income, was $32.9 million during the fourth quarter of 2017, up $1.9 million, or 6.0 percent, from the prior-year fourth quarter. Net interest income during the fourth quarter of 2017 was $28.4 million, up $2.0 million, or 7.4 percent, from the fourth quarter of 2016, reflecting a higher level of earning assets and an increased net interest margin. Total revenue was $129 million during the full year 2017, up $1.8 million, or 1.5 percent, from 2016. Net interest income was $110 million in 2017, up $3.9 million, or 3.7 percent, from the prior year, reflecting a higher level of earning assets.

The net interest margin was 3.76 percent in the fourth quarter of 2017, up from 3.72 percent in the prior-year fourth quarter. The increase in the net interest margin primarily resulted from a higher yield on loans, mainly reflecting the positive impact of higher interest rates on variable-rate commercial loans stemming from the Federal Open Market Committee ("FOMC") hiking the targeted federal funds rate by 25 basis points in December of 2016 and March, June, and December of 2017. The cost of funds equaled 0.59 percent during the fourth quarter of 2017, up from 0.46 percent during the respective 2016 period mainly due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds.

The net interest margin was 3.79 percent in 2017, down from 3.86 percent in 2016 due to an increased cost of funds, which more than offset a slight increase in the yield on average earning assets. The cost of funds equaled 0.54 percent during 2017, up from 0.45 percent during 2016 primarily due to higher costs of certain non-time deposits, time deposits, and borrowed funds. The improved yield on average earning assets mainly resulted from an increased yield on loans, primarily reflecting higher interest rates on variable-rate commercial loans stemming from the previously-mentioned FOMC rate hikes, which more than offset a decreased yield on securities, mainly reflecting a decreased level of accelerated purchase discount accretion on called U.S. Government agency bonds. A change in earning asset mix also contributed to the increased yield on average earning assets; average loans represented 85.2 percent of average earning assets during 2017, up from 84.9 percent during 2016. The accelerated discount accretion totaled $2.2 million during 2016, positively impacting the net interest margin by eight basis points. A nominal level of accelerated discount accretion on called U.S. Government agency bonds was recorded as interest income during 2017.

Net interest income and the net interest margin during 2017 and 2016 were also affected by purchase accounting accretion and amortization entries associated with the fair value measurements recorded effective June 1, 2014. Increases in interest income on loans totaling $4.6 million and $4.9 million were recorded during 2017 and 2016, respectively. An increase in interest expense on subordinated debentures totaling $0.7 million was recorded during both 2017 and 2016. Purchased loan accretion amounts vary from period to period as a result of periodic cash flow re-estimations, loan payoffs, and payment performance.

Mercantile recorded a $0.6 million provision for loan losses during both the fourth quarter of 2017 and the prior-year fourth quarter. During 2017, Mercantile recorded a provision for loan losses of $3.0 million, compared to a provision of $2.9 million during 2016. The provision expense recorded during the 2017 and 2016 periods primarily reflects ongoing loan growth and periodic adjustments to loan loss reserve environmental factors.

Noninterest income during the fourth quarter of 2017 was $4.5 million, down $0.1 million, or 2.2 percent, from the prior-year fourth quarter. Growth in credit and debit card fees and payroll processing revenue was more than offset by a decline in other income, which was elevated in the fourth quarter of 2016 mainly as a result of payments received on certain purchased credit-impaired loans. Noninterest income for 2017 was $19.0 million, down $2.0 million, or 9.7 percent, from 2016. Core noninterest income revenue streams, including treasury management income, credit and debit card interchange fees, mortgage banking activity income, payroll processing revenue, and customer service fees, increased $1.2 million, or 8.5 percent, on a combined basis in 2017 compared to the prior year. The increase in mortgage banking activity income primarily reflects the positive impact of strategic initiatives that were implemented in the latter half of 2016 and throughout 2017, including the hiring of additional loan originators, introduction of new and enhanced products, loan programs and increased marketing efforts. Noninterest income during both periods benefitted from certain noncore transactions, including a Bank-owned life insurance death benefit claim in 2017 and a gain associated with a trust preferred securities repurchase transaction in 2016.

Noninterest expense totaled $19.8 million during the fourth quarter of 2017, up $1.5 million, or 7.9 percent, from the prior-year fourth quarter. Noninterest expense during 2017 was $79.7 million, an increase of $2.6 million, or 3.4 percent, from the $77.1 million expensed during 2016. The higher level of expense in the 2017 periods primarily resulted from expected increases in various operating expenses stemming from recent expansion initiatives and increased salary expense, mainly reflecting annual employee merit pay increases, the hiring of additional staff, a larger bonus accrual, and greater stock-based compensation expense. A significant portion of the increased salary expense resulting from staff additions reflects the opening of the southeast Michigan office.

Mr. Kaminski continued, "Our net interest margin remained relatively steady during 2017, ranging from 3.73 percent to 3.85 percent on a quarterly basis. The increase in our loan yield, which helped offset the impact of an increased cost of funds on our net interest margin, primarily reflects the positive impact of the recent Federal Open Market Committee rate hikes, which outweighed the negative impacts stemming from persistent competitive pressures and the ongoing relatively low interest rate environment. In light of our current balance sheet structure, we anticipate that potential additional rate hikes will benefit our net interest income. We are pleased with the growth in our core noninterest income revenue streams, and we will continue our efforts to enhance fee income in future periods."

Balance Sheet

As of December 31, 2017, total assets were $3.29 billion, up $204 million, or 6.6 percent, from December 31, 2016. Total loans increased $180 million, or 7.6 percent, to $2.56 billion over the same time period. Approximately $119 million and $529 million in commercial term loans to new and existing borrowers were originated during the fourth quarter and full year of 2017, respectively, as ongoing sales and relationship-building efforts resulted in increased lending opportunities. As of December 31, 2017, unfunded commitments on commercial construction and development loans totaled approximately $154 million, which are expected to be largely funded over the next 12 to 18 months.

Raymond Reitsma, President of Mercantile Bank of Michigan, noted, "We are very pleased with our new commercial term loan originations during 2017. Although the commercial loan portfolio slightly contracted during the fourth quarter of 2017, we were still able to produce net loan growth during the quarter as a result of growth in the residential mortgage portfolio. The reduction in commercial loans stemmed from an unusually high level of payoffs, primarily reflecting situations whereby we remained committed to margin and credit quality preservation. The solid growth in the commercial and industrial, owner-occupied commercial real estate, and non-owner occupied commercial real estate portfolios during 2017 reflects the ongoing efforts of our lending team to identify new lending opportunities and meet the needs of existing customers, while growth in the residential mortgage portfolio during the year depicts the success of strategic initiatives focused on increasing our market presence. Based on the strength of our current loan pipelines and additional lending opportunities reported by commercial lenders, we are confident that we can grow the commercial and residential loan portfolios in future periods."

Commercial and industrial loans and owner-occupied commercial real estate ("CRE") loans combined represented approximately 58 percent of total commercial loans as of December 31, 2017. Non-owner occupied CRE loans equaled about 36 percent of total commercial loans as of December 31, 2017.

As of December 31, 2017, total deposits were $2.52 billion, up $147 million from December 31, 2016. Local deposits were up $121 million since year-end 2016. Growth in local deposits was mainly driven by new commercial loan relationships and the success of various deposit account initiatives. Wholesale funds were $323 million, or approximately 11 percent of total funds, as of December 31, 2017, compared to $251 million, or about 9 percent of total funds, as of December 31, 2016.

Asset Quality

Nonperforming assets at December 31, 2017 were $9.4 million, or 0.3 percent of total assets, compared to $6.4 million, or 0.2 percent of total assets, at December 31, 2016. The transfer of a Bank-owned parcel of real estate, which is no longer being considered for use as a bank facility, from fixed assets to other real estate owned accounted for nearly 55 percent of the $3.0 million increase in nonperforming assets during 2017. The parcel of real estate is expected to be sold in the next six months for an amount that approximates current book value. The level of past due loans remains nominal, and loan relationships on the internal watch list have remained relatively consistent in number and dollar volume.

Net loan charge-offs were $0.3 million during the fourth quarter of 2017, or an annualized 0.05 percent of average loans, and $0.2 million, or an annualized 0.03 percent of average loans, during the prior-year fourth quarter. Net loan charge-offs totaled $1.4 million during 2017, or 0.06 percent of average loans, and $0.6 million, or 0.03 percent of average loans, during 2016.

Capital Position

Shareholders’ equity totaled $366 million as of December 31, 2017, an increase of $25.1 million from year-end 2016. The Bank’s capital position remains above "well-capitalized" with a total risk-based capital ratio of 12.6 percent as of December 31, 2017, compared to 13.1 percent at December 31, 2016. At December 31, 2017, the Bank had approximately $77 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a "well-capitalized" institution. Mercantile reported 16,592,125 total shares outstanding at December 31, 2017.

No shares were repurchased during 2017 as part of the $20 million stock repurchase program that was announced in January of 2015. Future share repurchases totaling $15.5 million can be made under the program, which was expanded by $15 million in early 2016.

Mr. Kaminski concluded, "Our strong financial performance during 2017 positions us to meet growth objectives and further build shareholder value. As evidenced by our ongoing cash dividend program, including the announcement of an increased first quarter 2018 regular cash dividend earlier today, we remain committed to enhancing shareholder value. Our relationship-based banking approach, which focuses on meeting customers’ needs through the efficient delivery of a wide-range of products and services, continues to be successful as depicted by the solid growth in deposits and loans during the year. We are excited about Mercantile’s future and are confident that our demonstrated robust operating performance will continue in the current year."

About Mercantile Bank Corporation

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan. Mercantile provides banking services to businesses, individuals and governmental units, and differentiates itself on the basis of service quality and the expertise of its banking staff. Mercantile has assets of approximately $3.2 billion and operates 49 banking offices. Mercantile Bank Corporation’s common stock is listed on the NASDAQ Global Select Market under the symbol "MBWM."

Forward-Looking Statements

This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies; and other factors, including risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                                                   DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                   2017              2016              2015
ASSETS
Cash and due from banks                        $   55,127,000    $   50,200,000    $   42,829,000
Interest-earning deposits                          144,974,000       133,396,000       46,463,000
Federal fund sold                                  0                 0                 599,000
Total cash and cash equivalents                    200,101,000       183,596,000       89,891,000
Securities available for sale                      335,744,000       328,060,000       346,992,000
Federal Home Loan Bank stock                       11,036,000        8,026,000         7,567,000
Loans                                              2,558,552,000     2,378,620,000     2,277,727,000
Allowance for loan losses                          (19,501,000)      (17,961,000)      (15,681,000)
Loans, net                                         2,539,051,000     2,360,659,000     2,262,046,000
Premises and equipment, net                        46,034,000        45,456,000        46,862,000
Bank owned life insurance                          68,689,000        67,198,000        58,971,000
Goodwill                                           49,473,000        49,473,000        49,473,000
Core deposit intangible                            7,600,000         9,957,000         12,631,000
Other assets                                       28,976,000        30,146,000        29,123,000
Total assets                                   $   3,286,704,000 $   3,082,571,000 $   2,903,556,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing                            $   866,380,000   $   810,600,000   $   674,568,000
Interest-bearing                                   1,655,985,000     1,564,385,000     1,600,814,000
Total deposits                                     2,522,365,000     2,374,985,000     2,275,382,000
Securities sold under agreements to repurchase     118,748,000       131,710,000       154,771,000
Federal Home Loan Bank advances                    220,000,000       175,000,000       68,000,000
Subordinated debentures                            45,517,000        44,835,000        55,154,000
Accrued interest and other liabilities             14,204,000        15,230,000        16,445,000
Total liabilities                                  2,920,834,000     2,741,760,000     2,569,752,000
SHAREHOLDERS’ EQUITY
Common stock                                       309,772,000       305,488,000       304,819,000
Retained earnings                                  60,132,000        40,904,000        27,722,000
Accumulated other comprehensive income/(loss)      (4,034,000)       (5,581,000)       1,263,000
Total shareholders’ equity                         365,870,000       340,811,000       333,804,000
Total liabilities and shareholders’ equity     $   3,286,704,000 $   3,082,571,000 $   2,903,556,000
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
(Unaudited)
                                   THREE MONTHS ENDED             THREE MONTHS ENDED    TWELVE MONTHS ENDED    TWELVE MONTHS ENDED
                                   December 31, 2017              December 31, 2016     December 31, 2017      December 31, 2016
INTEREST INCOME
Loans, including fees              $                  30,411,000  $         27,830,000  $         116,816,000  $         109,049,000
Investment securities                                 2,036,000             1,724,000             7,631,000              9,007,000
Other interest-earning assets                         455,000               161,000               1,096,000              401,000
Total interest income                                 32,902,000            29,715,000            125,543,000            118,457,000
INTEREST EXPENSE
Deposits                                              2,819,000             1,940,000             9,362,000              7,549,000
Short-term borrowings                                 48,000                57,000                190,000                211,000
Federal Home Loan Bank advances                       966,000               668,000               3,657,000              2,263,000
Other borrowed money                                  667,000               615,000               2,586,000              2,567,000
Total interest expense                                4,500,000             3,280,000             15,795,000             12,590,000
Net interest income                                   28,402,000            26,435,000            109,748,000            105,867,000
Provision for loan losses                             600,000               600,000               2,950,000              2,900,000
Net interest income after
provision for loan losses                             27,802,000            25,835,000            106,798,000            102,967,000
NONINTEREST INCOME
Service charges on accounts                           1,085,000             1,075,000             4,233,000              4,253,000
Credit and debit card income                          1,263,000             1,093,000             4,760,000              4,278,000
Mortgage banking income                               1,188,000             1,288,000             4,421,000              3,866,000
Earnings on bank owned life insurance                 337,000               331,000               2,731,000              1,264,000
Other income                                          630,000               817,000               2,856,000              7,377,000
Total noninterest income                              4,503,000             4,604,000             19,001,000             21,038,000
NONINTEREST EXPENSE
Salaries and benefits                                 11,601,000            10,565,000            45,397,000             43,524,000
Occupancy                                             1,479,000             1,463,000             6,186,000              6,063,000
Furniture and equipment                               543,000               541,000               2,168,000              2,119,000
Data processing costs                                 2,067,000             1,990,000             8,222,000              7,939,000
FDIC insurance costs                                  252,000               128,000               960,000                1,236,000
Other expense                                         3,906,000             3,707,000             16,783,000             16,237,000
Total noninterest expense                             19,848,000            18,394,000            79,716,000             77,118,000
Income before federal income
tax expense                                           12,457,000            12,045,000            46,083,000             46,887,000
Federal income tax expense                            4,478,000             3,960,000             14,809,000             14,974,000
Net Income                         $                  7,979,000   $         8,085,000   $         31,274,000   $         31,913,000
Basic earnings per share                              $0.48                 $0.49                 $1.90                  $1.96
Diluted earnings per share                            $0.48                 $0.49                 $1.90                  $1.96
Average basic shares outstanding                      16,525,625            16,352,359            16,478,968             16,292,086
Average diluted shares outstanding                    16,536,225            16,374,117            16,489,070             16,310,730
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
                                              Quarterly                                                    Year-To-Date
(dollars in thousands except per share data)  2017         2017        2017        2017        2016
                                              4th Qtr      3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     2017        2016
EARNINGS
Net interest income                         $ 28,402       28,644      27,193      25,509      26,435      109,748     105,867
Provision for loan losses                   $ 600          1,000       750         600         600         2,950       2,900
Noninterest income                          $ 4,503        4,605       4,042       5,851       4,604       19,001      21,038
Noninterest expense                         $ 19,848       20,210      19,882      19,776      18,394      79,716      77,118
Net income before federal income
tax expense                                 $ 12,457       12,039      10,603      10,984      12,045      46,083      46,887
Net income                                  $ 7,979        8,337       7,343       7,615       8,085       31,274      31,913
Basic earnings per share                    $ 0.48         0.51        0.45        0.46        0.49        1.90        1.96
Diluted earnings per share                  $ 0.48         0.51        0.45        0.46        0.49        1.90        1.96
Average basic shares outstanding              16,525,625   16,483,492  16,471,060  16,434,647  16,352,359  16,478,968  16,292,086
Average diluted shares outstanding            16,536,225   16,494,540  16,485,356  16,449,210  16,374,117  16,489,070  16,310,730
PERFORMANCE RATIOS
Return on average assets                      0.97%        1.03%       0.96%       1.02%       1.05%       1.00%       1.07%
Return on average equity                      8.70%        9.21%       8.39%       8.99%       9.35%       8.82%       9.35%
Net interest margin (fully tax-equivalent)    3.76%        3.83%       3.85%       3.73%       3.72%       3.79%       3.86%
Efficiency ratio                              60.32%       60.78%      63.65%      63.06%      59.26%      61.92%      60.77%
Full-time equivalent employees                641          634         643         617         616         641         616
YIELD ON ASSETS / COST OF FUNDS
Yield on loans                                4.76%        4.81%       4.69%       4.54%       4.65%       4.70%       4.65%
Yield on securities                           2.60%        2.50%       2.44%       2.35%       2.27%       2.47%       2.87%
Yield on other interest-earning assets        1.29%        1.28%       0.99%       0.81%       0.51%       1.21%       0.51%
Yield on total earning assets                 4.35%        4.41%       4.37%       4.20%       4.18%       4.33%       4.31%
Yield on total assets                         4.04%        4.10%       4.05%       3.88%       3.87%       4.02%       3.99%
Cost of deposits                              0.45%        0.43%       0.35%       0.33%       0.33%       0.39%       0.33%
Cost of borrowed funds                        1.74%        1.75%       1.69%       1.53%       1.45%       1.68%       1.45%
Cost of interest-bearing liabilities          0.88%        0.85%       0.77%       0.68%       0.68%       0.80%       0.66%
Cost of funds (total earning assets)          0.59%        0.58%       0.52%       0.47%       0.46%       0.54%       0.45%
Cost of funds (total assets)                  0.55%        0.54%       0.48%       0.43%       0.42%       0.50%       0.42%
PURCHASE ACCOUNTING ADJUSTMENTS
Loan portfolio - increase interest income   $ 683          1,757       1,336       832         1,672       4,608       4,925
Trust preferred - increase interest expense $ 171          171         171         171         171         684         684
Core deposit intangible - increase overhead $ 556          556         609         636         636         2,357       2,675
MORTGAGE BANKING ACTIVITY
Total mortgage loans originated             $ 62,526       61,962      60,371      38,365      46,727      223,224     163,072
Purchase mortgage loans originated          $ 33,958       41,254      39,115      21,523      21,962      135,850     78,251
Refinance mortgage loans originated         $ 28,568       20,708      21,256      16,842      24,765      87,374      84,821
Total mortgage loans sold                   $ 26,254       33,858      29,371      18,463      30,081      107,946     111,058
Net gain on sale of mortgage loans          $ 1,051        1,131       1,012       732         993         3,926       3,397
CAPITAL
Tangible equity to tangible assets            9.56%        9.54%       9.70%       9.77%       9.31%       9.56%       9.31%
Tier 1 leverage capital ratio                 11.28%       11.18%      11.49%      11.53%      11.17%      11.28%      11.17%
Common equity risk-based capital ratio        10.76%       10.54%      10.65%      10.83%      10.88%      10.76%      10.88%
Tier 1 risk-based capital ratio               12.23%       12.01%      12.15%      12.39%      12.47%      12.23%      12.47%
Total risk-based capital ratio                12.89%       12.66%      12.79%      13.05%      13.13%      12.89%      13.13%
Tier 1 capital                              $ 360,533      354,087     347,754     341,708     336,316     360,533     336,316
Tier 1 plus tier 2 capital                  $ 380,035      373,280     366,048     359,984     354,278     380,035     354,278
Total risk-weighted assets                  $ 2,948,013    2,949,011   2,861,605   2,757,616   2,697,727   2,948,013   2,697,727
Book value per common share                 $ 22.05        21.99       21.69       21.13       20.76       22.05       20.76
Tangible book value per common share        $ 18.61        18.49       18.16       17.56       17.14       18.61       17.14
Cash dividend per common share              $ 0.19         0.19        0.18        0.18        0.67        0.74        1.16
ASSET QUALITY
Gross loan charge-offs                      $ 920          709         1,150       456         970         3,235       2,205
Recoveries                                  $ 628          607         419         171         805         1,825       1,585
Net loan charge-offs (recoveries)           $ 292          102         731         285         165         1,410       620
Net loan charge-offs to average loans         0.05%        0.02%       0.12%       0.05%       0.03%       0.06%       0.03%
Allowance for loan losses                   $ 19,501       19,193      18,295      18,276      17,961      19,501      17,961
Allowance to originated loans                 0.88%        0.88%       0.86%       0.92%       0.95%       0.88%       0.95%
Nonperforming loans                         $ 7,143        8,231       6,450       7,292       5,939       7,143       5,939
Other real estate/repossessed assets        $ 2,260        2,327       789         495         469         2,260       469
Nonperforming loans to total loans            0.28%        0.32%       0.26%       0.30%       0.25%       0.28%       0.25%
Nonperforming assets to total assets          0.29%        0.32%       0.23%       0.26%       0.21%       0.29%       0.21%
NONPERFORMING ASSETS - COMPOSITION
Residential real estate:
Land development                            $ 0            0           0           0           16          0           16
Construction                                $ 0            0           0           0           0           0           0
Owner occupied / rental                     $ 3,574        3,648       3,367       2,972       2,883       3,574       2,883
Commercial real estate:
Land development                            $ 35           50          65          80          95          35          95
Construction                                $ 0            0           0           0           0           0           0
Owner occupied                              $ 4,272        4,627       1,313       1,221       610         4,272       610
Non-owner occupied                          $ 36           84          400         421         488         36          488
Non-real estate:
Commercial assets                           $ 1,444        2,126       2,081       3,076       2,293       1,444       2,293
Consumer assets                             $ 42           23          13          17          23          42          23
Total nonperforming assets                    9,403        10,558      7,239       7,787       6,408       9,403       6,408
NONPERFORMING ASSETS - RECON
Beginning balance                           $ 10,558       7,239       7,787       6,408       5,459       6,408       6,737
Additions - originated loans                $ 402          4,789       1,774       2,987       2,953       9,952       6,344
Merger-related activity                     $ 0            210         16          0           33          226         33
Return to performing status                 $ 0            (120)       0           (113)       (13)        (233)       (13)
Principal payments                          $ (688)        (1,089)     (1,168)     (1,289)     (1,386)     (4,234)     (4,164)
Sale proceeds                               $ (101)        (373)       (147)       (56)        (308)       (677)       (1,428)
Loan charge-offs                            $ (754)        (91)        (953)       (135)       (263)       (1,933)     (981)
Valuation write-downs                       $ (14)         (7)         (70)        (15)        (67)        (106)       (120)
Ending balance                              $ 9,403        10,558      7,239       7,787       6,408       9,403       6,408
LOAN PORTFOLIO COMPOSITION
Commercial:
Commercial & industrial                     $ 753,764      776,562     780,816     757,219     713,903     753,764     713,903
Land development & construction             $ 29,872       28,575      29,027      31,924      34,828      29,872      34,828
Owner occupied comm’l R/E                   $ 526,327      485,347     491,633     452,382     450,464     526,327     450,464
Non-owner occupied comm’l R/E               $ 791,685      805,167     783,036     768,565     748,269     791,685     748,269
Multi-family & residential rental           $ 101,918      119,170     114,081     113,257     117,883     101,918     117,883
Total commercial                            $ 2,203,566    2,214,821   2,198,593   2,123,347   2,065,347   2,203,566   2,065,347
Retail:
1-4 family mortgages                        $ 254,560      236,075     220,697     205,850     195,226     254,560     195,226
Home equity & other consumer                $ 100,426      103,376     107,991     112,117     118,047     100,426     118,047
Total retail                                $ 354,986      339,451     328,688     317,967     313,273     354,986     313,273
Total loans                                 $ 2,558,552    2,554,272   2,527,281   2,441,314   2,378,620   2,558,552   2,378,620
END OF PERIOD BALANCES
Loans                                       $ 2,558,552    2,554,272   2,527,281   2,441,314   2,378,620   2,558,552   2,378,620
Securities                                  $ 346,780      341,126     333,294     341,677     336,086     346,780     336,086
Other interest-earning assets               $ 144,974      123,110     48,762      12,663      133,396     144,974     133,396
Total earning assets (before allowance)     $ 3,050,306    3,018,508   2,909,337   2,795,654   2,848,102   3,050,306   2,848,102
Total assets                                $ 3,286,704    3,254,655   3,143,336   3,018,919   3,082,571   3,286,704   3,082,571
Noninterest-bearing deposits                $ 866,380      826,038     800,718     757,706     810,600     866,380     810,600
Interest-bearing deposits                   $ 1,655,985    1,663,005   1,570,003   1,520,310   1,564,385   1,655,985   1,564,385
Total deposits                              $ 2,522,365    2,489,043   2,370,721   2,278,016   2,374,985   2,522,365   2,374,985
Total borrowed funds                        $ 387,468      390,868     404,370     380,009     354,902     387,468     354,902
Total interest-bearing liabilities          $ 2,043,453    2,053,873   1,974,373   1,900,319   1,919,287   2,043,453   1,919,287
Shareholders’ equity                        $ 365,870      362,546     357,499     348,050     340,811     365,870     340,811
AVERAGE BALANCES
Loans                                       $ 2,534,729    2,534,364   2,472,489   2,390,030   2,372,510   2,483,440   2,345,308
Securities                                  $ 346,318      339,125     338,045     339,537     336,493     340,770     340,172
Other interest-earning assets               $ 138,095      116,851     46,250      61,376      127,790     90,925      77,863
Total earning assets (before allowance)     $ 3,019,142    2,990,340   2,856,784   2,790,943   2,836,793   2,915,135   2,763,343
Total assets                                $ 3,248,828    3,220,053   3,081,542   3,016,871   3,064,974   3,142,673   2,987,784
Noninterest-bearing deposits                $ 849,751      805,650     785,705     766,031     773,137     802,024     715,550
Interest-bearing deposits                   $ 1,635,727    1,648,235   1,531,399   1,542,078   1,561,539   1,589,778   1,567,846
Total deposits                              $ 2,485,478    2,453,885   2,317,104   2,308,109   2,334,676   2,391,802   2,283,396
Total borrowed funds                        $ 384,168      393,910     400,508     352,614     366,905     382,917     347,134
Total interest-bearing liabilities          $ 2,019,895    2,042,145   1,931,907   1,894,692   1,928,444   1,972,695   1,914,980
Shareholders’ equity                        $ 363,823      359,131     351,216     343,344     343,122     354,448     341,340

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SOURCE Mercantile Bank Corporation

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