Focus and Banking & Finance

Mercantile Bank gets go-ahead to merge

May 16, 2014
| By Pete Daly |
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Five months later than planned — and at additional cost — Mercantile Bank has finally been cleared by federal regulators to complete its merger with Firstbank Corp. in Alma.

A formal protest under the Community Reinvestment Act was filed with the Federal Reserve System in October by Matthew R. Lee of The Bronx, N.Y., an attorney/activist who has an online watchdog organization called the Inner City Press/Fair Finance Watch.

Lee claimed Mercantile refuses to offer mortgages to African-Americans or Latinos.

The merger, announced Aug. 15, 2013, was approved by the two banks’ shareholders in December and was originally expected to close by the end of 2013.

The merger is now expected to be completed as of June 1, with the combined companies operating as Mercantile Bank Corp. with consolidated assets of approximately $2.9 billion, making it the 13th largest insured deposits bank in Michigan, according to the Federal Reserve Board.

“We are pleased that, after an extensive and meticulous regulatory review, we have obtained approval to complete this transformational merger with Firstbank Corp.,” said Michael Price, Mercantile chairman and CEO.

The merger will create “a powerhouse Michigan-based community bank holding company,” according to Price, and the order approving it, from the Federal Reserve Board May 7, “validates our history of community involvement and outstanding performance under the Community Reinvestment Act, and follows a thorough analysis of our lending practices.”

Price said the delay “certainly added to the cost,” although he did not have an estimate of the amount.

The FRB said it received one objection to the merger — meaning Lee’s, which allegedly was based on Mercantile’s fair lending record contained in 2012 data available to the public under the Home Mortgage Disclosure Act.

The FRB noted Mercantile had an “overall ‘outstanding’ rating” from its last evaluation by the FDIC in March 2012, and received an “outstanding” rating on the FDIC Lending Test and “high satisfactory” rating from both the Investment and Service Tests.

“Examiners considered Mercantile Bank to have an excellent record of lending inside its assessment areas and noted that Mercantile Bank was a leader in community development lending,” states the FRB report.

The report states that Lee “alleged that Mercantile did not originate loans to African-Americans or Hispanics across a range of loan products, including conventional home purchase loans, refinance loans, and home improvement loans in the Grand Rapids MSA. The commenter also asserted that Mercantile disproportionately denied applications by African-American applicants for refinance loans in the Grand Rapids MSA.”

“The board’s review in this case generally confirmed the levels of lending by Mercantile to African-American and Hispanic borrowers and the denial disparity ratio noted by (Lee). Mercantile states that the low level of applications received from African-Americans and Hispanics is due to several factors: the effect of persistently weak economic conditions on minorities in Grand Rapids, the very low percentage of applications received by all home mortgage reporters from African-Americans and Hispanics in the Grand Rapids MSA, strong competition from other banks in the market to attract home mortgage applications from minorities, and the fact that home mortgage loans to individuals account for only a small portion of Mercantile’s total lending.”

“In light of the low levels of applications received by Mercantile from African-Americans and Hispanics in the Grand Rapids MSA, the board conducted a lending analysis for 2012 comparing Mercantile to its peers in minority tracts of the MSA and did not find statistically significant disparities,” states the report.

The FRB also consulted with the FDIC, the primary supervisor of each of the banks involved in the proposed merger.

“The FDIC concluded that it did not find evidence of Mercantile Bank engaging in discriminatory or other illegal credit practices, and that the public comment should not preclude approval of the (merger) proposal,” states the report.

Price told the Business Journal that Mercantile’s home mortgage business is very small. Since the bank was founded 17 years ago, he said it has concentrated on small business lending and “we don’t have a big retail loan presence.”

Price said the regularly scheduled ratings of each bank by the FDIC to ensure compliance with the Community Reinvestment Act involve “a very long and rigorous examination that takes weeks and months, and so to have someone … from another state say, ‘Well, we think that Mercantile doesn’t comply,’ it’s a tough thing to have to through” — referring to the investigation of the allegations by the FRB and the FDIC.

“We’re happy to see that our feelings of our record are validated by a very comprehensive review by two very strong government agencies,” said Price.

In a separate matter, Mercantile also is the subject of a lawsuit filed last year by Grand Rapids business owner Roosevelt Tillman, who alleges the bank discriminates against minorities. That lawsuit is ongoing.

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