Mercantile Reports Loss

April 16, 2007
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GRAND RAPIDS — In its more than nine years of operation, Mercantile Bank Corp. has never experienced a quarter of flat or decreased growth — until now. The company’s first quarter 2007 net income dropped 13.1 percent to $4.3 million from $4.9 million in the first quarter of last year. Diluted earnings per share were 53 cents for the quarter, compared with 61 cents for the year-ago quarter.

Total revenue was $15.9 million for the first quarter, down 2.8 percent from $16.3 million reported for the first quarter of 2006. Net interest income decreased 4.1 percent from the prior year’s first quarter to $14.5 million. Non-interest income was up 13.3 percent over the first quarter of 2006.

Chairman and CEO Gerald Johnson Jr. said earnings continue to be impacted by net interest margin pressures and slower asset growth. He said the new year presents Mercantile and the banking industry as a whole with a continuation of the same challenges experienced last year. Those challenges include ongoing margin pressures brought about by highly competitive pricing on both loans and deposits, as well as an increasingly competitive environment.

“We continue to gain market share at the expense of our competitors who have shown an ongoing and aggressive willingness to compromise on deal structure, as well as undercut Mercantile’s pricing on potential new, as well as existing, credit relationships, oftentimes at absurdly low levels that are unreflective of the proposed transaction’s credit risk,” Johnson commented. “We have on many occasions chosen to walk from deals where our competitors have compromised on structure to obtain the business.” 

There just isn’t a lot of optimism among Michigan borrowers at this time because of some of the things going on in the state and the Midwest, President Michael Price observed. He said the Mercantile management team has focused on asset quality as competitive pressures have caused so many banks to drop their underwriting standards in search for greater loan volume.

While Mercantile has always enjoyed very strong loan and asset growth during its existence, economic and competitive conditions dictate that the company should be very careful with loan growth for the next quarter or two, Price said.

“Focusing on our core competencies and maintaining our standards is particularly important to our organization at this time,” Price said. “We feel that building relationships within our traditional standards remains our key mission, even if our traditionally robust loan growth takes a back seat for a few quarters.”

Executive Vice President Robert Kominski Jr. noted that Mercantile has had a lot of success with its health savings account product. In late 2006, Mercantile established a relationship with a major West Michigan employer to provide HSAs to its staff, he said.

“In this relationship, as well as others, we are currently adding about 100 new accounts a month and have brought in about a half a million dollars in new money to the bank so far in 2007,” he pointed out.

Mercantile commenced the rollout of its new Internet banking product in February. Kominski said construction is nearly complete on Mercantile’s new Lansing banking center, with an opening scheduled for mid-May.

On Tuesday, Mercantile’s board of directors declared a 5 percent stock dividend on its common stock, payable on May 4 to shareholders of record as of April 23. The company also announced a second quarter cash dividend of 14 cents per share on its common stock, payable on June 8 to shareholders of record as of the close of business on May 10.    

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