Mercantile, Wolverine Woo Investors

September 7, 2005
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GRAND RAPIDS — Mercantile Bank Corp. and Wolverine World Wide took center stage last Tuesday at the first Michigan Growth Stock Conference, which brought together regional investors and the CEOs of some of Michigan’s strongest small- and mid-cap growth companies.

Lambert, Edwards & Associates Inc. hosted the event, which was held in Birmingham and attended by Michigan-based sell- and buy-side analysts, portfolio managers and brokers. Asset Acceptance Capital Corp. of Warren and Spartan Motors of Charlotte also made presentations at the event.

Mercantile

Mercantile Bank of Michigan serves Kent and Ottawa counties and offers commercial banking service primarily to small and mid-sized businesses. It has five banking offices in metro Grand Rapids,  full service branches in Holland and Lansing, and will open a branch in Ann Arbor this month.

Mercantile entered the Holland market in April 2003, and that branch is already well in excess of $120 million in assets, CEO Gerald Johnson Jr. said.

“When we get into a new market what we really want is local presence,” he said. “We don’t build a nice facility, then hope we can staff it. What we want are good, local people that are well known.”

Mercantile’s Lansing branch president, for example, has been in the market for 32 years, and its Ann Arbor branch president has been in the market more than 22 years, Johnson said. Johnson has 33 years in commercial banking under his belt.

“We want that entrepreneurship, we want experience and the same quality of responsive service and approval that we have in Grand Rapids that has made us so successful in West Michigan,” Johnson said. “The key is identifying experienced bankers who value our particular model.”

He said the changing banking landscape in West Michigan has played a part in Mercantile’s success. Since opening its doors eight years ago, every major competitor has been sold at least once and that has been a “tremendous boost” for Mercantile’s business.

“The banks that have come into our markets are excellent banks, but a bank headquartered out of state just cannot possibly give the type of service that a locally headquartered bank can give. I don’t mean to denigrate the competition; they just don’t have the opportunity that we have to give quick, responsive service.”

Mercantile opened in late 1997, achieved $1 billion in assets by mid-2003, and reached $1.5 billion in total assets by the end of 2004.

Ninety percent of Mercantile’s business is loans to small- to medium-sized businesses, and according to Johnson one of the reasons the company has high asset quality is because it has “tremendously experienced” lenders.

He said Mercantile has a very comprehensive approval process — each lender has individual authorities, the bank has a loan committee, and at certain levels, the loan goes to the board for approval. Mercantile has always relied on its own internal loan review process, unlike a lot of newer banks that outsource that process, he said.

“We are just real basic business lenders — cash flow and collateral. We don’t get into leveraged leases and we don’t buy indirect paper.”

On top of that, Johnson said, because Mercantile bankers are all local, they have “great knowledge” of the marketplace and know the people they want to do business with, as well as the people they probably don’t want to include in their portfolio.

“The partnership with our borrowers is a relationship, not a commodity,” he said.

CFO Charles Christmas said Mercantile’s strong earnings momentum is generated by three key components: strong asset growth and high asset quality, significantly lower charge-offs than banks of similar size, and efficient operating structure.

Wolverine

Founded in 1883, Wolverine Worldwide of Rockford has grown to become one of the world’s leading marketers of branded casual, active lifestyle, work, outdoor sport and uniform footwear, operating in more than 140 countries. President and CFO Stephen L. Gulis Jr. said 2004 was a record year of achievement for Wolverine and that the company is on “a very promising pace for 2005.” Wolverine reached just under $1 billion in total revenue last year, marking its fifth consecutive year of record growth.

He said Wolverine may be best known for its Hush Puppies brand.

“Hush Puppies globally was about 16 percent of our revenue base,” Gulis said. “With our portfolio of brands today, it’s still a very important business for us, but it’s not the only business we’re in.”

The Wolverine Footwear Group, which includes Wolverine boots and shoes and base military business, generated 27 percent of revenues last year. The Outdoor Group — represented by the Merrell brand— is Wolverine’s fastest growing business and continues to lead the way among Wolverine’s portfolio of brands, he said.

Wolverine purchased the Merrell brand in 1997 and added the Sebago brand to the outdoor lineup in 2003. The Outdoor Group generated nearly 30 percent of Wolverine’s annual revenue last year. In its first full year of operation, Sebago generated $30 million in 2004 global sales, and Merrell brought in $270 million.

The Heritage Group, which includes licensed Harley Davidson and Caterpillar brands, accounted for 16 percent of revenues. Gulis said other footwear brands, and businesses such as Wolverine’s small retail and tanning operations, make up the remaining 12 percent.

“One of the things we talk a lot about in our business is our diversification,” Gulis said. “We’ve always enjoyed that diversification because our business is not subject to one economic climate only.”

He said the company’s international revenue base was about 26 percent of its overall revenue mix last year, and North America was 74 percent.

For the first half of 2005, revenue reached $460.9 million, an 8.8 percent gain over the first half of 2004. Earnings per share for the first half grew to 49 cents per share, up nearly 29 percent over the same period of 2004.

“From a financial perspective, our business is very strong,” Gulis said. “One of the things you see in the footwear industry is that consistency is not always there, and we really focus our efforts on having consistent financial returns.

“We may never be the fastest growing business in our sector, but we feel that we can be the most consistent. We believe that’s the way it is because of the diversification in our portfolio and the international mix that we have in our business.”    

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