Focus and Banking & Finance

Mercantile reports first full quarter after merger

It is now the fourth largest bank domiciled in Michigan.

November 21, 2014
| By Pete Daly |
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There were some trying moments for Mercantile Bank Corp. over the past 16 months, but it may be smoother sailing ahead for the Grand Rapids-based organization, which just reported results of its first full quarter after a major merger with Firstbank Corp. of Alma.

The merger, announced in August 2013 and finalized June 1 of this year, makes Mercantile the fourth-largest bank domiciled in Michigan, with assets of approximately $2.9 billion and 53 banking offices in central and western Michigan.

Net income in the third quarter for the expanded organization was $5.9 million, compared to $3.5 million in the same quarter last year.

Mercantile, which was founded in 1997 with a focus on commercial lending, also just hired three experienced commercial lending officers who had been with “larger, well-established banks” in the Grand Rapids and Lansing regions.

“We are a very strong community bank providing services and products that are unparalleled for community banks, and right on par with any of the large banks,” said Mercantile president and CEO Michael Price.

Even though it now holds fourth place rank among Michigan-based banks and is the 13thlargest insured deposits bank in Michigan, according to the Federal Reserve Board, Mercantile is “clearly way below the size of some of the big regional players,” such as Fifth Third or Huntington, “and certainly the big national banks” such as Chase or Bank of America, said Price.

However, Mercantile is “in that really good sweet spot where we can deliver a very wide range of products and services, but still small enough and locally driven to give that great level of service,” Price added.

The third-quarter performance reflects progress in the integration of Mercantile and Firstbank, according to Mercantile.

Results for the quarter also included $1.3 million in pre-tax merger-related costs, which, after taxes, were $900,000, or five cents per diluted share. Excluding the merger costs, adjusted net income was equal to $6.8 million and adjusted earnings per share was forty cents.

Other highlights of the quarter:

**Net interest margin increased to 3.95 percent from 3.62 in the second quarter.

**Mercantile loan pipeline “remains strong.”

**Successful merge of computer processing systems.

Nonperforming assets remained at a “negligible level,” with a $400,000 negative provision for loan losses during the third quarter.

That number had been minus $1.7 million provision in the same period of 2013.

However, there was new loan funding of approximately $47 million during the quarter.

Price said the bank’s experience in the third quarter “indicates we are on track to realize the significant cost savings and business opportunities that were identified during the merger negotiations. We remain confident of the positive attributes of the merger."

"Our integration teams have made excellent progress in bringing these two institutions together in a seamless way," said Samuel Stone, executive vice president. "Our teams achieved a major milestone in the third quarter with the successful merging of computer processing systems involving minimal customer disruption. We are grateful for the hard work of our employees in delivering significant progress in the initial integration of Firstbank and Mercantile while continuing to serve our customers and grow our business."

Total revenue in interest income and noninterest income more than doubled during the third quarter to $28.9 million, up $15.2 million from the prior-year third quarter. Net interest income during the quarter was $26 million, up $14 million, reflecting a 106 percent increase in average earning assets and a 19 basis point increase in the net interest margin. The strong increase in the net interest margin was fueled by a merger-related 39 basis point reduction in the cost of funds.

Industry-wide weakness in mortgage banking revenue caused the percentage increase in noninterest income to be less than the percentage increase in net interest income.

"We are extremely pleased to realize the projected improvement in our net interest margin and its very positive impact on profitability,” said Price.

He noted, however, the negative impact, to a lesser degree, of the industry-wide slowdown in mortgage banking activity. Mortgage income in the third quarter of 2014 was less than half of what the two banks together had achieved a year ago.

In May, five months later than planned and at additional cost, Mercantile was finally cleared by federal regulators to complete its merger with Firstbank.

The delay was due to a formal protest under the Community Reinvestment Act filed with the Federal Reserve System in October 2013 by Matthew R. Lee, an attorney/activist in New York who claimed that Mercantile does not offer mortgages to African-Americans or Latinos. An extensive investigation by federal banking officials determined that the allegations were unfounded.

The Federal Reserve Board said Lee’s was the only objection to the merger.

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