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Mercantile Bank Corp. Reports Operating Results (10-Q)

May 06, 2009 | About:

Mercantile Bank Corp. (MBWM) filed Quarterly Report for the period ended 2009-03-31.

Mercantile Bank Corporation serves businesses and consumers across Grand Rapids and Kent County with a full range of mortgage lending deposit and checking products and services in a friendly hometown banking environment. Mercantile Bank Corp. has a market cap of $33.6 million; its shares were traded at around $3.91 with and P/S ratio of 0.3. The dividend yield of Mercantile Bank Corp. stocks is 4.1%. Mercantile Bank Corp. had an annual average earning growth of 12.5% over the past 5 years.

Highlight of Business Operations:

As of December 31, 2007, nonperforming assets totaled $35.7 million, or 1.68% of total assets, an increase from the $9.6 million, or 0.46% of total assets, as of December 31, 2006. As of December 31, 2007, nonperforming loans secured by real estate, combined with foreclosed properties, totaled $28.6 million, or about 80% of total nonperforming assets. Nonperforming loans and foreclosed properties associated with the development of residential real estate totaled $11.1 million, with another $3.2 million in nonperforming loans secured by, and foreclosed properties consisting of, residential properties. Net loan and lease charge-offs during 2007 totaled $6.7 million, or 0.38% of average total loans and leases. Net loan and lease charge-offs during the fourth quarter of 2007 totaled $3.9 million, or about 58%, of the total net loan and lease charge-offs for all of 2007. During 2006, net loan and lease charge-offs totaled $4.9 million, or 0.29% of average total loans and leases.

As of March 31, 2009, nonperforming assets totaled $83.7 million, or 3.74% of total assets, an increase from the $57.4 million, or 2.60% of total assets, as of December 31, 2008, and from the $40.6 million, or 1.92% of total assets, as of March 31, 2008. As of March 31, 2009, nonperforming loans secured by CRE, combined with foreclosed properties, totaled $37.1 million. Nonperforming loans and foreclosed properties associated with the development of residential real estate totaled $26.2 million, with another $4.9 million in nonperforming loans secured by, and foreclosed properties consisting of, residential properties. Net loan and lease charge-offs during the first quarter of 2009 totaled $5.6 million, or an annualized 1.25% of average total loans and leases.

Cash and cash equivalents increased $111.5 million during the first three months of 2009, totaling $137.3 million on March 31, 2009. Cash and due from bank balances were up $0.4 million, short term investments increased $29.9 million and federal funds sold were up $81.2 million. During the latter part of the first quarter, we experienced a significant influx of cash resulting from a reduction in total loans and leases (about $79.0 million) and growth in local retail and municipal certificates of deposit (about $130.0 million). Although we immediately started to reduce the level of wholesale funds, the inflow of cash far outpaced the outflows from wholesale funding maturities. For yield and risk diversification purposes, we invested part of the excess funds into short term certificates of deposit with a correspondent bank, with an aggregate balance of $30.0 million at March 31, 2009. During the initial stages of the second quarter, we continued to utilize our relatively significant short term investment and federal funds positions to fund wholesale funding maturities, with our cash and cash equivalents returning to a more normalized level in early May.

Deposits increased $51.7 million during the first three months of 2009, totaling $1,651.3 million at March 31, 2009. Local deposits increased $133.9 million, while out-of-area deposits decreased $82.2 million. As a percent of total deposits, local deposits equaled 36.6% on March 31, 2009, an increase from 28.5% as of December 31, 2008. Noninterest-bearing demand deposits, comprising 6.8% of total deposits, increased $1.9 million during the first three months of 2009. Savings deposits (3.2% of total deposits) increased $2.6 million, interest-bearing checking accounts (3.1% of total deposits) increased $1.5 million and money market deposit accounts (1.4% of total deposits) decreased $1.8 million during the first three months of 2009. Local certificates of deposit, comprising 22.1% of total deposits, increased $129.7 million during the first three months of 2009. The growth primarily reflects an influx of new depositors resulting from a one year certificate of deposit campaign we ran during part of the first quarter and from municipal depositors.

Interest income during the first quarter of 2009 was $28.0 million, a decrease of 12.3% from the $32.0 million earned during the first quarter of 2008. The reduction in interest income is primarily attributable to a declining yield on earning assets, resulting from a decreasing interest rate environment, an increase in nonperforming assets, and increased levels of federal funds sold and short term investments, which more than offset an increase in earning assets. During the first three months of 2009, earning assets averaged $2,155.3 million, $140.1 million higher than the average earning assets of $2,015.2 million during the same time period in 2008. Average federal funds sold increased $65.0 million, average loans and leases were up $27.7 million, average securities increased $30.6 million, and average short term investments, consisting mainly of certificates of deposit, were up $16.8 million.

Interest expense during the first quarter of 2009 was $16.2 million, a decrease of 21.2% over the $20.6 million expensed during the first quarter of 2008. The reduction in interest expense is primarily attributable to a declining interest rate environment, which more than offset an increase in interest-bearing liabilities necessitated by asset growth. During the first three months of 2009, interest-bearing liabilities averaged $1,958.1 million, or $151.6 million higher than the average interest-bearing liabilities of $1,806.5 million during the same time period in 2008. Average interest-bearing deposits were up $82.2 million, while average FHLB advances increased $56.7 million and average long term borrowings increased $14.7 million. A decline in the average cost of interest-bearing liabilities resulted in the reduction of interest expense. During the first three months of 2009 and 2008, interest-bearing liabilities had a weighted average rate of 3.36% and 4.57%, respectively. The lower weighted average cost of interest-bearing liabilities is primarily due to the decline in market interest rates.

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