Mercantile Net Income Up 38 Percent

October 21, 2005
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GRAND RAPIDS — Mercantile Bank Corp., the bank holding company for Mercantile Bank of Michigan, has opened a Holland office and moved “aggressively” into the Lansing and Ann Arbor markets. Despite the cost of expanding the franchise, the company continues to see growth in both earnings and assets.

Mercantile reported net income for the quarter ended Sept. 30 of $4.3 million, up slightly more than 38 percent over the $3.1 million posted for 2004’s third quarter.

Diluted earnings per share were 56 cents, compared with 41 cents for the quarter a year ago. Net income and diluted earnings per share for the quarter increased 17.4 percent and 16.7 percent, respectively.

“Mercantile’s financial numbers reflect the continued successful implementation of our strategy, that being a concentration on business lending, strong asset growth led by growth of our commercial loan portfolio, and fine asset quality in addition to operating structure,” said CFO Chuck Christmas.

Total assets were $1.8 billion Sept. 30, up $321.8 million, or 21.8 percent, from last year’s third quarter. Loan growth — virtually all of which was commercial — was $235.2 million, or nearly 19 percent, over the same period the year before. Mercantile attributed the growth to an increase in deposits of $252.4 million, or 22 percent.

Christmas said the company’s financial results also continue to reflect the significant provision expense necessitated by Mercantile’s strong loan growth, as well as the initial overhead costs associated with the company’s expansion into the Lansing and Ann Arbor markets.

Mercantile has had notable increases in overhead costs, but its revenue continues to rise at a much higher level, he noted. In the past year, the company increased staff by more than 38 percent, adding 73 full-time equivalent employees to support the Holland, Lansing and Ann Arbor full-service bank branches and the opening of the company’s new 60,000-square-foot headquarters in Grand Rapids this past spring. President Michael Price said 23 of the 73 new employees work in either the Lansing or Ann Arbor market.

While overhead costs were up $2.7 million quarter over quarter, Mercantile’s net revenue was up $3.4 million through the same time period, Christmas pointed out. On a year-to-date basis, overhead costs have increased $6.2 million, and the company’s revenue was up $10.6 million for the same period.

“The strong increase in net income and earnings per share continued to be achieved through the strong growth in net interest income — resulting from earning asset growth and improved net interest margin — that has more than offset the growth in overhead costs…” Christmas said.

Executive Vice President Robert Kaminski Jr. pointed out that during the third quarter Mercantile rolled out a “refreshened” Web site and began an upgrade of its Internet banking platform, which is scheduled for completion in early 2006. The bank also has a couple of items on the radar screen, he said, such as remote deposit capture — which will allow customers’ deposits to be transmitted electronically.

In comparing the first nine months of 2005 with the first nine months of 2004, Christmas excluded the write-off costs associated with the 1999 issuance of trust-preferred securities, which were redeemed in September 2004. The $845,000 one-time charge created $548,000 on an after-tax basis for the third quarter of 2004, he noted.

Year to date, Mercantile earned $13.4 million, an increase of $3.6 million, or 36 percent, over the $9.8 million it made in the first nine months of last year. Diluted earnings per share for the first nine months were $1.72, a jump of about 35 percent over the first nine months of 2004, Christmas said. Net income and diluted earnings per share for the first nine months increased 36.5 percent and 35.4 percent, respectively.

Shareholders’ equity at Sept. 30 was $152.3 million, marking a 12-month increase of $14.4 million, or 10.4 percent.

Price recalled that when Mercantile first articulated its expansion strategy two quarters ago, senior management felt the bank would most likely enter new markets by hiring “outstanding local bankers” to create the branches, rather than by acquiring an existing bank.

“After our first full quarter in Lansing and a partial quarter in Washtenaw County (Ann Arbor), all signs appear to show this strategy is working in a very positive way,” Price said. “During the third quarter, those two new regions contributed over $13 million in loan growth and $5 million in deposit growth.”

The bank’s Kent and Ottawa county locations continue “the phenomenal growth that has been the signature of Mercantile from our inception,” he added.    

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