Mercantile Bank Sharing The Wealth

July 12, 2005
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GRAND RAPIDS — After only eight years in business, Mercantile Bank Corp. has built up $1.7 billion in assets by sticking to the game plan. That strategy has been to create a business-banking niche: the little big bank. According to Mercantile President and COO Michael Price, that means having the expertise and sophistication of a large bank, as well as the agility and flexibility of a smaller operation.

Once again, that strategy has paid off. In a July 7 conference call, Mercantile outlined its performance during the first half of 2005 and announced two dividends.

Mercantile’s second-quarter net income was $4.7 million. That figure is 49.1 percent higher than the $3.1 million in the second quarter of 2004. Add that to $4.4 million in strong first-quarter earnings — for a six-month total of $9.1 million net earnings — and Mercantile realizes a 47.9 percent increase over the first half of 2004.

Mercantile will reward shareholders with a 5-percent stock dividend on Aug. 1. Non-shareholders may benefit from the dividend by purchasing stock and becoming a shareholder of record by July 18. The dividend will result in more than 7.5 million outstanding shares.

The second dividend offered is an 11-cents-per-share cash dividend. Like the share dividend, investors who don’t currently hold shares of MBWM still have time to get in. The dividend will be paid on Sept. 9 to shareholders on the rolls prior to Aug. 10.

Of course, the dividends aren’t the real news. Companies don’t pay dividends without fundamental strength and growth. Mercantile’s quarterly report shows that the company has those assets and suggests more to come.

The company experienced notable growth in nearly all revenue centers. The obvious exception was a “modest decline” in mortgage banking. These totals “would have been higher had it not been for some significant pay-downs” from developers selling off projects to outside investors, according to Price.

While the growth in the numbers — and the bottom line — has been impressive, Mercantile is focusing on another kind of growth. The second quarter of 2005 saw the company move into its new headquarters facility on Leonard Street NW in Grand Rapids. The bank is also currently expanding into the Ann Arbor and Lansing markets.

Price said that he foresees “a healthy pipeline of both loan and deposit business” coming from both markets. Each has its unique challenges, but according to the Mercantile principals, the staff they have chosen to lead the Ann Arbor and Lansing teams has the specific knowledge to make Mercantile succeed outside of West Michigan.

CFO Chuck Christmas said that Mercantile will realize $850,000 in overhead expenses on its new branches in the second half of 2005. Price would not speculate on when the Ann Arbor branch would begin to turn a profit, but he predicted that the Lansing branch could be “somewhere north” of profitability by year’s end. The bank is off to a good start. The branch facility has not yet opened its doors, but the officers have already begun making loan deals.

Price was less forthcoming about the Ann Arbor market, but he did make a rough revenue forecast.

“I don’t think that getting to $70 million-$75 million after three years is out of the realm,” he said. “In fact, there’s a lot of possibility for them to do better than that.”

Price suggested that the bank also may be scoping out some nearby markets for future expansion. Battle Creek and Kalamazoo both were mentioned.

“Really as far south as Indianapolis,” he said. “That’s not to say we’re going into any of them, but we’re keeping our eyes on them.”

Meanwhile, the bank is facing increased competition back home in West Michigan.

“Some of the big players like Fifth Third have been kind of annoyed by their loss of market share,” Price said. As such, they’ve begun to offer “really aggressive products” which are priced “at ridiculous levels.” Christmas suggested that this and other market forces could mean “tightened margins” in the future, but the company is still optimistic.

Chairman and CEO Gerald R. Johnson Jr. is pleased with the current state and the future growth of Mercantile Bank.

“We have demonstrated our ability to achieve strong growth in assets, revenue and bottom-line profits year over year — as well as quarterly — while investing in infrastructure and staff,” he said. “Growth continues at a robust pace, with no evidence of deterioration in asset quality despite softness in the West Michigan economy. Effective management of our balance sheet has also enabled us to benefit consistently over the past year from the rising rate environment. We look forward to continued growth from expansion activities as well as from our West Michigan market.”    

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