Mercantile Grows Despite Economic Downturn

June 5, 2002
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GRAND RAPIDS — Mercantile Bank Corp., the bank holding company for Mercantile Bank of West Michigan, reported strong growth in its loan portfolio and a 22 percent increase in net income for the second quarter ended June 30.

Last Tuesday the company announced its intention to file a registration statement with the Securities and Exchange Commission for an underwritten public offering of up to 1.38 million common shares. Mercantile expects to commence the offering in the third quarter.

At the outset of Wednesday’s second quarter teleconference, Mercantile Chairman and CEO Gerald Johnson Jr. said that because of the contemplated offering, company officials could not answer questions directly relating to capital.

“I will say the proposed offering reflects our ongoing commitment to our shareholders to take advantage of significant growth opportunities in our market.”

Key second quarter developments included a $48.4 million increase in total loans and earnings of 25 cents per share.

President and COO Michael Price said the company experienced a phenomenal quarter of growth, with total assets increasing by $57 million. Year to date, the bank has increased assets by $105 million.

The majority of asset growth was in the form of loans diversified between loans to new and to existing customers. Loans also were well dispersed as to type and industry, following Mercantile’s history of avoiding concentrations of credit, he said.

The $48 million increase in total loans reflected a 36 percent increase over second quarter 2000. Loan growth for the three preceding quarters was $30 million, $28 million and $27 million, respectively. Price attributed continued growth to the company’s lending team and the economic diversity of the Grand Rapids area.

“So even compared to our recent history, the $48 million of loan growth for the quarter was exceptional,” Price remarked. “A noteworthy dynamic of our growth was that $23 million of the quarter’s loan growth took place in the month of June.”

As to asset quality, the market area continues to be stressed by the economic downturn, but Mercantile’s portfolio of loans is performing as strong as ever, he said. Net loans continue to comprise 83 percent of the company’s assets, and investments about 11 percent.

Net loan charge-offs for the quarter were $33,000 and $20,000 year-to-date. Past due loans stood at 0.03 percent of total loans at quarter’s end, down from 0.04 percent in the previous quarter.

“These extremely strong numbers will be hard to maintain if the economic downturn worsens,” Price acknowledged. “However, we feel they are indicative of an active credit culture that helps us keep our asset quality above peer group norms.”

Net income for the quarter rose by 23 percent to $770,000, compared to $636,000 in 2000’s second quarter.

Growth in net income was the result of increased net interest income, primarily from the growth of earning assets, said Charles Christmas, Mercantile’s chief financial officer. The growth in income came despite having had to put “significant dollar amounts” in the bank’s loan loss reserve to insure adequate reserves.

Second quarter earnings were 25 cents per share, the same as second quarter 2000, Christmas said. Earnings per share for the first half of the year were up 32 percent over the prior year period.

The bank earned $1.7 million for the six-month period, compared to $1.1 million for the first half of 2000. Total revenues increased to $22.6 million in the first half of this year, up 32 percent over 2000’s first half.

Expenses were up 15 percent in the second quarter and 18 percent for the first half of the year, compared to the same periods last year. Christmas attributed the majority of the increase to salary and benefits for new employees as well as raises for other employees.

Robert Kaminski, senior vice president, noted that Mercantile will open a banking branch and an administration building in Wyoming in September. The bank will introduce payroll service for existing bank customers and hopes to bring on some initial customers in the fourth quarter of this year, he said. If that goes over as well as anticipated, there will be a complete rollout of the service in January 2002.

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