Mercantile Bank Corporation Announces Strong Fourth Quarter and Full Year 2021 Results

Robust core commercial loan growth, very strong operating performance and continued strength in asset quality metrics highlight 2021
Published: Jan. 18, 2022 at 6:01 AM EST

GRAND RAPIDS, Mich., Jan. 18, 2022 /PRNewswire/ -- Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $11.6 million, or $0.74 per diluted share, for the fourth quarter of 2021, compared with net income of $14.1 million, or $0.87 per diluted share, for the respective prior-year period.  For the full year 2021, Mercantile reported net income of $59.0 million, or $3.69 per diluted share, compared with net income of $44.1 million, or $2.71 per diluted share, for the full year 2020.

Costs and a charitable contribution related to the formation and initial funding of The Mercantile Bank Foundation decreased net income during the fourth quarter of 2021 and full year 2021 by approximately $3.2 million, or $0.20 per diluted share.  Excluding the impacts of these transactions, diluted earnings per share increased $0.07, or 8.0 percent, during the fourth quarter of 2021, and $1.18, or 43.5 percent, during the full year 2021 compared to the respective 2020 periods.

"We are very pleased to report another quarter and year of robust operating performance," said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile.  "Our strong financial results during 2021 reflect solid growth in core commercial loans and residential mortgage loans, a higher level of net interest income, increases in all key fee income categories, and sustained strength in asset quality.  Based on the strength of our current capital position, which was recently augmented with a subordinated notes issuance, and healthy loan pipelines and prospects, we believe that we are well positioned to continue to achieve strong financial performance in future periods.  The unwavering resiliency exhibited by the entire Mercantile team and our customers during the ongoing COVID-19 pandemic has been inspiring, and we look forward to continue serving as a trusted advisor to our existing clients and identifying opportunities to forge mutually beneficial relationships with prospective customers."

Full year highlights include:

  • Solid growth in core commercial loans and residential mortgage loans
  • Ongoing strength in commercial loan and residential mortgage loan pipelines
  • Sustained strength in asset quality metrics
  • Strong capital position and operating performance
  • Enhanced regulatory capital levels to support anticipated organic loan growth with issuance of subordinated notes
  • Substantial increases in key fee income categories
  • Further growth in local deposits
  • Opened new mortgage lending center in Petoskey, Michigan
  • Announced first quarter 2022 regular cash dividend of $0.31 per common share, an increase of over 3 percent from the regular cash dividend paid during the fourth quarter of 2021
  • Formed The Mercantile Bank Foundation to assist in the funding and administering of charitable giving activities

Operating Results

Total revenue, which consists of net interest income and noninterest income, was $45.2 million during the fourth quarter of 2021, compared to $46.2 million during the prior-year fourth quarter.  Net interest income during the fourth quarter of 2021 was $32.5 million, up from $31.8 million during the respective 2020 period due to the positive impact of earning asset growth, which more than offset a lower net interest margin.  Noninterest income totaled $12.6 million for the fourth quarter of 2021, down from $14.3 million during the fourth quarter of 2020, as increases in most fee income categories were more than offset by a decline in mortgage banking income.

The net interest margin was 2.74 percent in the fourth quarter of 2021, compared to 3.00 percent in the prior-year fourth quarter.  The yield on average earning assets declined from 3.55 percent during the fourth quarter of 2020 to 3.12 percent during the respective 2021 period primarily due to a lower yield on commercial loans, mainly reflecting a lower level of  Paycheck Protection Program loan fee accretion, and a change in earning asset mix.  A significant volume of excess on-balance sheet liquidity, which initially surfaced in the second quarter of 2020 as a result of the COVID-19 environment and persisted during the remainder of 2020 and full year 2021, negatively impacted the yield on average earning assets by 49 basis points and 44 basis points during the fourth quarters of 2021 and 2020, respectively, and the net interest margin by 43 basis points and 37 basis points during the respective periods.  The excess funds, consisting primarily of low-yielding deposits with the Federal Reserve Bank of Chicago, are mainly a product of continuing local deposit growth and Paycheck Protection Program loan forgiveness activities.

The cost of funds decreased from 0.55 percent during the fourth quarter of 2020 to 0.38 percent during the current-year fourth quarter.  This was primarily due to a change in funding mix, as lower-costing non-time deposits increased as a percentage of total funding sources, as well as lower rates paid on local time deposits reflecting the declining interest rate environment.

Total revenue was $180 million during 2021, up $12.9 million, or 7.7 percent, from 2020.  Net interest income during 2021 was $124 million, up from $122 million during 2020 due to the positive impact of earning asset growth, which more than offset a lower net interest margin.  Noninterest income totaled $56.2 million during 2021, up from $45.2 million during 2020, mainly due to an increase in revenue associated with an interest rate swap program that was introduced during the fourth quarter of 2020.  Growth in all other key fee income categories and a gain on the sale of a branch also contributed to the higher level of noninterest income.

The net interest margin was 2.76 percent in 2021, compared to 3.15 percent in 2020.  The yield on average earning assets was 3.19 percent during 2021, down from 3.82 percent during 2020, mainly due to a change in earning asset mix and reduced yields on commercial loans and securities.  The change in earning asset mix, reflecting an increase in low-yielding interest-earning deposits stemming from the previously noted activities, negatively impacted the yield on average earning assets by 46 basis points and 27 basis points during 2021 and 2020, respectively, and the net interest margin by 39 basis points and 22 basis points during the respective periods.  The decreased yield on commercial loans primarily reflected reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee significantly decreasing the targeted federal funds rate by 150 basis points in March of 2020, along with the origination of new loans and renewal of maturing loans in the lower interest rate environment.  The reduced yield on securities mainly depicted a lower level of accelerated discount accretion on called U.S. Government agency bonds and lower yields on newly purchased agency bonds, reflecting the declining interest rate environment.  Accelerated discount accretion totaled $3.0 million during 2020, compared to less than $0.1 million during 2021.

The cost of funds declined from 0.67 percent during 2020 to 0.43 percent during 2021, primarily due to a change in funding mix, consisting of an increase in lower-costing non-time deposits as a percentage of total funding sources, and decreased rates paid on local time deposits, reflecting the declining interest rate environment.

Mercantile recorded negative provision expense of $3.4 million during the fourth quarter of 2021, compared to provision expense of $2.5 million during the fourth quarter of 2020.  During the full years of 2021 and 2020, Mercantile recorded negative provision expense of $4.3 million and provision expense of $14.1 million, respectively.  The negative provision expense recorded during the 2021 periods mainly reflected reduced allocations associated with the economic and business conditions environmental factor, depicting improvement in both current and forecasted economic conditions, and the recording of net loan recoveries in each period, which more than offset required reserve allocations necessitated by net growth in core commercial loans.  Approximately 80 percent of the provision expense recorded during 2020 reflected increased allocations associated with qualitative factors, namely economic conditions, loan review and value of underlying collateral dependent commercial loans, along with the creation of a COVID-19 pandemic environmental factor.  The COVID-19 pandemic environmental factor, developed during the second quarter, is designed to address the unique challenges and economic uncertainty resulting from the pandemic and its potential impact on the collectability of the loan portfolio.

Noninterest income during the fourth quarter of 2021 was $12.6 million, compared to $14.3 million during the prior-year fourth quarter.  The lower level of noninterest income mainly reflected decreased mortgage banking income, which more than offset growth in credit and debit card income, service charges on accounts, and payroll processing fees. Although declining in comparison to the prior-year fourth quarter, mortgage banking income during the fourth quarter of 2021 remained relatively strong as sustained strength in purchase mortgage originations partially mitigated the negative impacts of a decrease in refinance activity, a lower mortgage loan sold percentage, and a decreased gain on sale rate.

Noninterest income during 2021 was $56.2 million, compared to $45.2 million during 2020.  Noninterest income during 2021 included a gain on the sale of a branch totaling $1.1 million.  Excluding this transaction, noninterest income increased $10.0 million, or 22.1 percent, during 2021 compared to 2020.  The higher level of noninterest income primarily resulted from increased fee income generated from an interest rate swap program that was implemented during the fourth quarter of 2020.  The interest rate swap program provides certain commercial borrowers with a longer-term fixed-rate option and assists Mercantile in managing associated longer-term interest rate risk.  Growth in credit and debit card income, mortgage banking income, service charges on accounts, and payroll processing fees also contributed to the increased level of noninterest income.  Mortgage banking income remained robust in 2021 as ongoing strength in purchase mortgage originations and a higher gain on sale rate more than offset the negative impacts of a decline in refinance activity and a reduced mortgage loan sold percentage.

Noninterest expense totaled $33.3 million during the fourth quarter of 2021, compared to $25.9 million during the fourth quarter of 2020.  Noninterest expense during 2021 totaled $111 million, compared to $98.5 million during 2020.  Overhead costs during the fourth quarter of 2021 and full year 2021 included expenses and a charitable contribution associated with the formation and initial funding of The Mercantile Bank Foundation totaling $4.0 million, while overhead costs during the prior-year fourth quarter and full year 2020 included write-downs of former branch facilities totaling $1.4 million.  Overhead costs during the full year 2021 also included $0.6 million in net losses on sales and write-downs of former branch facilities.  Excluding these transactions, noninterest expense increased $4.8 million, or 19.7 percent, during the fourth quarter of 2021 compared to the respective 2020 period, and $9.2 million, or 9.5 percent, during 2021 compared to 2020.  The higher levels of expense in the 2021 periods primarily resulted from increased compensation costs, mainly reflecting increased regular salary expense largely stemming from annual employee merit pay increases, higher stock-based compensation expense, an increased bonus accrual, and larger signing bonus payments.  Increased residential mortgage lender commissions and related incentives also contributed to the higher level of compensation costs during the full year 2021.  Federal Deposit Insurance Corporation deposit insurance premiums were up in the current-year fourth quarter and full year 2021 compared to the respective 2020 periods primarily as a result of an increased assessment base and rate.  Health insurance costs increased in 2021 compared to 2020 mainly due to a higher level of claims, a large portion of which resulted from the treatment of COVID-19 related medical conditions.

Mr. Kaminski commented, "The growth in all key fee income categories during 2021 reflects the success of our ongoing efforts to increase our noninterest income revenue sources, which accounted for approximately 30 percent of operating income during the year.  We achieved a record-breaking level of mortgage banking income in 2021, in large part reflecting sustained strength in purchase mortgage originations, which more than offset a reduction in refinance activity.  The addition of proven residential mortgage lenders and opening of mortgage lending centers in new markets in 2020 and 2021, including Midland and Petoskey, Michigan, as well as Cincinnati, Ohio, significantly contributed to the strong level of mortgage banking income.  We remain focused on expense control and are continually reviewing our overhead cost structure to identify opportunities to operate more efficiently, while continuing to provide exceptional customer service and valuable products and services in a cost-conscious manner."

Balance Sheet

As of December 31, 2021, total assets were $5.26 billion, up $820 million, or 18.5 percent, from December 31, 2020.  Total loans increased $260 million during 2021, primarily reflecting net increases in core commercial loans of $482 million, of which $184 million occurred in the fourth quarter, and residential mortgage loans of $105 million, which more than offset a net reduction in Paycheck Protection Program loans of $325 million.  The growth in core commercial loans during the fourth quarter of 2021 equated to an annualized growth rate of approximately 27 percent, while the growth rate during the full year 2021 was approximately 20 percent.  As of December 31, 2021, unfunded commitments on commercial construction and development loans totaled approximately $182 million, which are expected to be largely funded over the next 12 to 18 months.

Interest-earning deposits increased $353 million during 2021, mainly reflecting continuing local deposit growth, Paycheck Protection Program forgiveness activities and an increase in sweep accounts, which outpaced loan growth and an expanded securities portfolio.  Securities grew $205 million during 2021, primarily depicting purchases to meet internal policy guidelines and deploy excess overnight funds.

Ray Reitsma, President of Mercantile Bank of Michigan, noted, "We are very pleased with the solid levels of core commercial loan and residential mortgage loan growth during 2021, which were achieved with a continuing focus on sound underwriting and appropriate risk-based pricing.  Increased commercial and industrial loans accounted for approximately two-thirds of our growth in core commercial loans during the year, which in turn created opportunities to add local deposits and increase fee income through our marketing of treasury management products and services.  We are also pleased with the ongoing strength of our commercial loan and residential loan pipelines, and as evidenced by our recent issuance of subordinated notes and associated increase in capital, we are confident that commercial loan originations will remain strong in future periods."

Excluding the impact of Paycheck Protection Program loan originations, commercial and industrial loans and owner-occupied commercial real estate loans together represented approximately 57 percent of total commercial loans as of December 31, 2021, a level that has remained relatively consistent and in line with internal expectations.

Total deposits at December 31, 2021, were $4.08 billion, up $672 million, or 19.7 percent, from December 31, 2020.  Local deposits were up $695 million during 2021, while brokered deposits were down $23.0 million.  The growth in local deposits, which occurred despite typical and expected seasonal business deposit withdrawals used for bonus and tax payments, primarily reflected federal government stimulus payments, reduced business and consumer investing and spending, deposits generated from newly established commercial loan relationships, and Paycheck Protection Program loan proceeds being deposited into customers' accounts at the time the loans were originated and remaining on deposit as of December 31, 2021.  Local deposits were up $214 million in the fourth quarter of 2021, primarily reflecting funds deposited by an existing customer that were obtained from the sale of a business; a majority of the funds are expected to be withdrawn in the near future.  Wholesale funds were $398 million, or approximately 9 percent of total funds, as of December 31, 2021, compared to $441 million, or approximately 11 percent of total funds, as of December 31, 2020.

Asset Quality

Nonperforming assets totaled $2.5 million and $4.1 million at December 31, 2021 and December 31, 2020, respectively, with each dollar amount representing 0.1 percent of total assets as of the respective dates.  During the fourth quarter of 2021, loan charge-offs totaled $0.2 million while recoveries of prior period loan charge-offs equaled $1.5 million, providing for net loan recoveries of $1.3 million, or an annualized 0.2 percent of average total loans.  During 2021, loan charge-offs totaled $1.0 million while recoveries of prior period loan charge-offs equaled $2.7 million, providing for net loan recoveries of $1.7 million, or 0.1 percent of average total loans.

Mr. Reitsma commented, "We are very pleased that our asset quality metrics have remained strong amid the ongoing COVID-19 pandemic.  Our commercial lending team's focus on proper underwriting, understanding clients' business operations, and partnering with commercial borrowers who possess sound business judgment has played a major role in our asset quality withstanding the negative impact of the pandemic on the business and economic conditions environment.  We continue to have low levels of past due loans, gross loan charge-offs, and nonperforming assets, and at year-end 2021, we did not hold any parcels of other real estate."

Capital Position

Shareholders' equity totaled $457 million as of December 31, 2021, an increase of $15.0 million from year-end 2020.  The Bank's capital position remains above "well-capitalized" with a total risk-based capital ratio of 13.6 percent as of December 31, 2021, compared to 13.5 percent at December 31, 2020.  At December 31, 2021, the Bank had approximately $147 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a "well-capitalized" institution.  Mercantile reported 15,839,944 total shares outstanding at December 31, 2021.

As part of $20.0 million common stock repurchase programs announced in May of 2019 and 2021, respectively, Mercantile repurchased approximately 683,000 shares for $21.4 million, at a weighted average all-in cost per share of $31.29, during 2021, including approximately 47,000 shares for $1.6 million, at a weighted average all-in cost per share of $33.35, during the fourth quarter.  The 2021 program replaced the 2019 program, which was nearing exhaustion.  The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including Mercantile's stock price, capital position, and financial performance, general market and economic conditions, alternative uses of capital, and applicable legal requirements.  As of December 31, 2021, availability under the current program equaled $6.8 million.  The program may be discontinued at any time.

Mr. Kaminski concluded, "Our strong operating performance allowed us to continue our regular quarterly cash dividend program in 2021 and provide shareholders with competitive dividend yields, and we were pleased to announce earlier today that our Board of Directors declared an increased first quarter 2022 cash dividend.  Based on our dynamic financial position, healthy loan pipelines, and identified client acquisition opportunities, we believe we are well positioned to continue delivering solid operating results, growth levels and returns to our investors.  If the Federal Open Market Committee initiates rate hikes in 2022 as currently expected, our balance sheet structure is positioned to generate additional net interest income."

Investor Presentation

Mercantile has prepared presentation materials that management intends to use during its previously announced fourth quarter 2021 conference call on Tuesday, January 18, 2022, at 10:00 a.m. Eastern Time, and from time to time thereafter in presentations about the Company's operations and performance.  The Investor Presentation also contains information relating to Mercantile's COVID-19 pandemic response plan, which may be modified to address new developments, as the company carefully monitors the recent surge in cases.  These materials have been furnished to the U.S. Securities and Exchange Commission concurrently with this press release, and are also available on Mercantile's website at www.mercbank.com.

About Mercantile Bank Corporation

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan.  Mercantile provides banking services to businesses, individuals and governmental units, and differentiates itself on the basis of service quality and the expertise of its banking staff. Mercantile has assets of approximately $5.2 billion and operates 44 banking offices.  Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "MBWM."

Forward-Looking Statements

This news release contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.  Any such statements are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates; significant declines in the value of commercial real estate; market volatility; demand for products and services; the degree of competition by traditional and nontraditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the method of determining Libor and the phase-out of Libor; changes in the national and local economies, including the ongoing disruption to financial market and other economic activity caused by the COVID-19 pandemic; and other factors, including those expressed as risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.  Investors are cautioned not to place undue reliance on any forward-looking statements contained herein.

MBWM-ER

FOR FURTHER INFORMATION:




            Robert B. Kaminski, Jr.                          

Charles Christmas

            President and CEO                              

Executive Vice President and CFO

            616-726-1502                                        

616-726-1202

            rkaminski@mercbank.com                  

cchristmas@mercbank.com

Mercantile Bank Corporation







Fourth Quarter 2021 Results







MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)










DECEMBER 31,


DECEMBER 31,


DECEMBER 31,



2021


2020


2019

ASSETS







   Cash and due from banks

$

59,405,000

$

62,832,000

$

53,262,000

   Interest-earning deposits


915,755,000


563,174,000


180,469,000

      Total cash and cash equivalents


975,160,000


626,006,000


233,731,000








   Securities available for sale


592,743,000


387,347,000


334,655,000

   Federal Home Loan Bank stock


18,002,000


18,002,000


18,002,000








   Loans


3,453,459,000


3,193,470,000


2,851,689,000

   Allowance for loan losses


(35,363,000)


(37,967,000)


(23,889,000)

      Loans, net


3,418,096,000


3,155,503,000


2,827,800,000








   Premises and equipment, net


57,298,000


58,959,000


57,327,000

   Bank owned life insurance


75,242,000


72,131,000


70,297,000

   Goodwill


49,473,000


49,473,000


49,473,000

   Core deposit intangible, net


1,351,000


2,436,000


3,840,000

   Mortgage loans held for sale


16,117,000


22,888,000


4,978,000

   Other assets


54,267,000


44,599,000


32,812,000








      Total assets

$

5,257,749,000

$

4,437,344,000

$

3,632,915,000















LIABILITIES AND SHAREHOLDERS' EQUITY







   Deposits:







      Noninterest-bearing

$

1,677,952,000

$

1,433,403,000

$

924,916,000

      Interest-bearing


2,405,241,000


1,978,150,000


1,765,468,000

         Total deposits


4,083,193,000


3,411,553,000


2,690,384,000








   Securities sold under agreements to repurchase


197,463,000


118,365,000


102,675,000

   Federal Home Loan Bank advances


374,000,000


394,000,000


354,000,000

   Subordinated debentures


48,244,000


47,563,000


46,881,000

   Subordinated notes


73,646,000


0


0

   Accrued interest and other liabilities


24,644,000


24,309,000


22,414,000

         Total liabilities


4,801,190,000


3,995,790,000


3,216,354,000








SHAREHOLDERS' EQUITY







   Common stock


285,752,000


302,029,000


305,035,000

   Retained earnings


174,536,000


134,039,000


107,831,000

   Accumulated other comprehensive income/(loss)


(3,729,000)


5,486,000


3,695,000

      Total shareholders' equity


456,559,000


441,554,000


416,561,000








      Total liabilities and shareholders' equity

$

5,257,749,000

$

4,437,344,000

$

3,632,915,000

Mercantile Bank Corporation













Fourth Quarter 2021 Results













MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)















THREE MONTHS ENDED

THREE MONTHS ENDED

TWELVE MONTHS ENDED

TWELVE MONTHS ENDED


December 31, 2021

December 31, 2020

December 31, 2021

December 31, 2020

INTEREST INCOME













   Loans, including fees

$

34,617,000


$

35,971,000


$

135,048,000


$

137,399,000


   Investment securities


2,139,000



1,484,000



7,513,000



10,038,000


   Other interest-earning assets


290,000



165,000



933,000



876,000


      Total interest income


37,046,000



37,620,000



143,494,000



148,313,000















INTEREST EXPENSE













   Deposits


1,867,000



3,176,000



9,114,000



14,984,000


   Short-term borrowings


47,000



41,000



170,000



173,000


   Federal Home Loan Bank advances


2,028,000



2,072,000



8,177,000



8,571,000


   Other borrowed money


570,000



482,000



1,971,000



2,339,000


      Total interest expense


4,512,000



5,771,000



19,432,000



26,067,000















      Net interest income


32,534,000



31,849,000



124,062,000



122,246,000















Provision for loan losses


(3,400,000)



2,500,000



(4,300,000)



14,050,000















      Net interest income after













         provision for loan losses


35,934,000



29,349,000



128,362,000



108,196,000















NONINTEREST INCOME













   Service charges on accounts


1,391,000



1,177,000



5,078,000



4,578,000


   Mortgage banking income


6,910,000



9,600,000



29,959,000



29,346,000


   Credit and debit card income


1,972,000



1,602,000



7,516,000



5,973,000


   Interest rate swap income


776,000



932,000



6,862,000



932,000


   Payroll services


442,000



399,000



1,815,000



1,745,000


   Earnings on bank owned life insurance

292,000



281,000



1,164,000



1,214,000


   Gain on sale of branch


0



0



1,058,000



0


   Other income


849,000



342,000



2,768,000



1,384,000


      Total noninterest income


12,632,000



14,333,000



56,220,000



45,172,000















NONINTEREST EXPENSE













   Salaries and benefits


19,193,000



15,411,000



66,447,000



59,799,000


   Occupancy


2,067,000



2,006,000



8,088,000



7,950,000


   Furniture and equipment


934,000



850,000



3,654,000



3,350,000


   Data processing costs


2,966,000



2,647,000



11,104,000



10,440,000


   Charitable foundation contributions


4,020,000



0



4,020,000



0


   Other expense


4,167,000



5,027,000



17,553,000



16,981,000


      Total noninterest expense


33,347,000



25,941,000



110,866,000



98,520,000















      Income before federal income













         tax expense


15,219,000



17,741,000



73,716,000



54,848,000















Federal income tax expense


3,580,000



3,659,000



14,695,000



10,710,000















      Net Income

$

11,639,000


$

14,082,000


$

59,021,000


$

44,138,000















   Basic earnings per share


$0.74



$0.87



$3.69



$2.71


   Diluted earnings per share


$0.74



$0.87



$3.69



$2.71















   Average basic shares outstanding


15,696,204



16,279,052



15,986,857



16,268,689


   Average diluted shares outstanding


15,696,451



16,279,243



15,987,303



16,269,319


Mercantile Bank Corporation















Fourth Quarter 2021 Results















MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)


















Quarterly


Year-To-Date

(dollars in thousands except per share data)

2021


2021


2021


2021


2020







4th Qtr


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


2021


2020

EARNINGS















   Net interest income

$

32,534


31,124


30,871


29,533


31,849


124,062


122,246

   Provision for loan losses

$

(3,400)


1,900


(3,100)


300


2,500


(4,300)


14,050

   Noninterest income

$

12,632


15,568


14,556


13,463


14,333


56,220


45,172

   Noninterest expense

$

33,347


26,210


26,192


25,117


25,941


110,866


98,520

   Net income before federal income















      tax expense

$

15,219


18,582


22,335


17,579


17,741


73,716


54,848

   Net income

$

11,639


15,051


18,091


14,239


14,082


59,021


44,138

   Basic earnings per share

$

0.74


0.95


1.12


0.87


0.87


3.69


2.71

   Diluted earnings per share

$

0.74


0.95


1.12


0.87


0.87


3.69


2.71

   Average basic shares outstanding


15,696,204


15,859,955


16,116,070


16,283,044


16,279,052


15,986,857


16,268,689

   Average diluted shares outstanding


15,696,451


15,860,314


16,116,666


16,283,490


16,279,243


15,987,303


16,269,319
















PERFORMANCE RATIOS















   Return on average assets


0.92%


1.23%


1.53%


1.26%


1.25%


1.23%


1.07%

   Return on average equity


10.15%


13.10%


16.27%


13.02%


12.75%


13.11%


10.32%

   Net interest margin (fully tax-equivalent)

2.74%


2.71%


2.76%


2.77%


3.00%


2.76%


3.15%

   Efficiency ratio


73.83%


56.13%


57.66%


58.42%


56.17%


61.50%


58.85%

   Full-time equivalent employees


627


629


634


621


621


627


621
















YIELD ON ASSETS / COST OF FUNDS















   Yield on loans


4.07%


4.07%


3.99%


4.03%


4.34%


4.06%


4.31%

   Yield on securities


1.46%


1.46%


1.54%


1.61%


1.69%


1.51%


3.00%

   Yield on other interest-earning assets

0.15%


0.16%


0.12%


0.11%


0.12%


0.14%


0.25%

   Yield on total earning assets


3.12%


3.13%


3.20%


3.26%


3.55%


3.19%


3.82%

   Yield on total assets


2.94%


2.94%


3.02%


3.09%


3.35%


2.99%


3.59%

   Cost of deposits


0.19%


0.23%


0.25%


0.31%


0.37%


0.24%


0.48%

   Cost of borrowed funds


1.66%


1.67%


1.73%


1.78%


1.75%


1.71%


1.93%

   Cost of interest-bearing liabilities


0.63%


0.69%


0.74%


0.82%


0.91%


0.72%


1.09%

   Cost of funds (total earning assets)


0.38%


0.42%


0.44%


0.49%


0.55%


0.43%


0.67%

   Cost of funds (total assets)


0.36%


0.39%


0.41%


0.47%


0.51%


0.40%


0.63%
















PURCHASE ACCOUNTING ADJUSTMENTS













   Loan portfolio - increase interest income

$

52


48


54


51


158


205


944

   Trust preferred - increase interest expense

$

171


171


171


171


171


684


684

   Core deposit intangible - increase overhead

$

238


238


291


318


318


1,085


1,404
















MORTGAGE BANKING ACTIVITY















   Total mortgage loans originated

$

210,228


259,512


237,299


245,200


218,904


952,239


864,444

   Purchase mortgage loans originated

$

124,557


143,635


144,476


81,529


99,490


494,197


297,111

   Refinance mortgage loans originated

$

85,671


115,877


92,823


163,671


119,414


458,042


567,333

   Mortgage loans originated to sell

$

129,546


177,837


140,497


195,655


159,942


643,535


672,252

   Net gain on sale of mortgage loans

$

6,850


6,659


7,690


9,182


9,476


30,381


29,521
















CAPITAL















   Tangible equity to tangible assets


7.79%


8.17%


8.51%


8.36%


8.89%


7.79%


8.89%

   Tier 1 leverage capital ratio


9.19%


9.33%


9.47%


9.67%


9.77%


9.19%


9.77%

   Common equity risk-based capital ratio

10.12%


10.34%


10.87%


11.11%


11.34%


10.12%


11.34%

   Tier 1 risk-based capital ratio


11.26%


11.53%


12.11%


12.41%


12.68%


11.26%


12.68%

   Total risk-based capital ratio


13.95%


12.47%


13.09%


13.51%


13.80%


13.95%


13.80%

   Tier 1 capital

$

456,133


448,010


445,410


437,567


430,146


456,133


430,146

   Tier 1 plus tier 2 capital

$

565,143


484,594


481,324


476,462


468,113


565,143


468,113

   Total risk-weighted assets

$

4,051,253


3,884,999


3,677,180


3,526,161


3,391,563


4,051,253


3,391,563

   Book value per common share

$

28.82


28.78


28.23


27.21


27.04


28.82


27.04

   Tangible book value per common share

$

25.61


25.53


25.03


24.02


23.86


25.61


23.86

   Cash dividend per common share

$

0.30


0.30


0.29


0.29


0.28


1.18


1.12
















ASSET QUALITY















   Gross loan charge-offs

$

179


744


68


53


340


1,044


839

   Recoveries

$

1,519


354


386


481


234


2,740


866

   Net loan charge-offs (recoveries)

$

(1,340)


390


(318)


(428)


106


(1,696)


(27)

   Net loan charge-offs to average loans

(0.16%)


0.05%


(0.04%)


(0.05%)


0.01%


(0.05%)


(0.01%)

   Allowance for loan losses

$

35,363


37,423


35,913


38,695


37,967


35,363


37,967

   Allowance to loans


1.02%


1.13%


1.11%


1.15%


1.19%


1.02%


1.19%

   Allowance to loans excluding PPP loans

1.04%


1.17%


1.20%


1.33%


1.33%


1.04%


1.33%

   Nonperforming loans

$

2,468


2,766


2,746


2,793


3,384


2,468


3,384

   Other real estate/repossessed assets

$

0


111


404


374


701


0


701

   Nonperforming loans to total loans


0.07%


0.08%


0.08%


0.08%


0.11%


0.07%


0.11%

   Nonperforming assets to total assets


0.05%


0.06%


0.07%


0.07%


0.09%


0.05%


0.09%
















NONPERFORMING ASSETS - COMPOSITION













   Residential real estate:















      Land development

$

32


33


34


34


35


32


35

      Construction

$

0


0


0


0


0


0


0

      Owner occupied / rental

$

1,768


2,063


2,137


2,305


2,607


1,768


2,607

   Commercial real estate:















      Land development

$

0


0


0


0


0


0


0

      Construction

$

0


0


0


0


0


0


0

      Owner occupied  

$

0


100


363


646


1,232


0


1,232

      Non-owner occupied

$

0


0


0


0


22


0


22

   Non-real estate:















      Commercial assets

$

662


673


606


169


172


662


172

      Consumer assets

$

6


8


10


13


17


6


17

   Total nonperforming assets


2,468


2,877


3,150


3,167


4,085


2,468


4,085
















NONPERFORMING ASSETS - RECON















   Beginning balance

$

2,877


3,150


3,167


4,085


4,653


4,085


2,736

   Additions

$

218


361


522


116


972


1,217


4,120

   Return to performing status

$

0


(50)


0


(115)


0


(165)


(105)

   Principal payments

$

(377)


(291)


(484)


(559)


(1,064)


(1,711)


(1,701)

   Sale proceeds

$

(111)


(209)


0


(77)


(245)


(397)


(486)

   Loan charge-offs

$

(139)


0


(55)


(33)


(231)


(227)


(455)

   Valuation write-downs

$

0


(84)


0


(250)


0


(334)


(24)

   Ending balance

$

2,468


2,877


3,150


3,167


4,085


2,468


4,085
















LOAN PORTFOLIO COMPOSITION















   Commercial:















      Commercial & industrial

$

1,137,419


1,074,394


1,103,807


1,284,507


1,145,423


1,137,419


1,145,423

      Land development & construction

$

43,240


38,380


43,111


58,738


55,055


43,240


55,055

      Owner occupied comm'l R/E

$

565,758


551,762


550,504


544,342


529,953


565,758


529,953

      Non-owner occupied comm'l R/E

$

1,027,415


998,697


950,993


932,334


917,436


1,027,415


917,436

      Multi-family & residential rental

$

176,593


179,126


161,894


147,294


146,095


176,593


146,095

         Total commercial

$

2,950,425


2,842,359


2,810,309


2,967,215


2,793,962


2,950,425


2,793,962

   Retail:















      1-4 family mortgages

$

442,546


411,618


380,292


337,844


337,888


442,546


337,888

      Home equity & other consumer

$

60,488


59,732


58,240


59,311


61,620


60,488


61,620

         Total retail

$

503,034


471,350


438,532


397,155


399,508


503,034


399,508

         Total loans

$

3,453,459


3,313,709


3,248,841


3,364,370


3,193,470


3,453,459


3,193,470
















END OF PERIOD BALANCES















   Loans

$

3,453,459


3,313,709


3,248,841


3,364,370


3,193,470


3,453,459


3,193,470

   Securities

$

610,745


577,566


524,127


452,259


405,349


610,745


405,349

   Other interest-earning assets

$

915,755


741,557


683,638


596,855


563,174


915,755


563,174

   Total earning assets (before allowance)

$

4,979,959


4,632,832


4,456,606


4,413,484


4,161,993


4,979,959


4,161,993

   Total assets

$

5,257,749


4,964,412


4,757,414


4,713,023


4,437,344


5,257,749


4,437,344

   Noninterest-bearing deposits

$

1,677,952


1,647,380


1,620,829


1,605,471


1,433,403


1,677,952


1,433,403

   Interest-bearing deposits

$

2,405,241


2,221,611


2,050,442


2,039,491


1,978,150


2,405,241


1,978,150

   Total deposits

$

4,083,193


3,868,991


3,671,271


3,644,962


3,411,553


4,083,193


3,411,553

   Total borrowed funds

$

694,588


619,441


613,205


584,672


562,360


694,588


562,360

   Total interest-bearing liabilities

$

3,099,829


2,841,052


2,663,647


2,624,163


2,540,510


3,099,829


2,540,510

   Shareholders' equity

$

456,559


452,278


451,888


441,243


441,554


456,559


441,554
















AVERAGE BALANCES















   Loans

$

3,373,551


3,276,863


3,365,686


3,318,281


3,268,866


3,324,612


3,167,065

   Securities

$

600,852


547,336


483,805


419,514


365,631


513,468


343,032

   Other interest-earning assets

$

738,328


733,801


619,358


591,617


559,593


671,351


356,501

   Total earning assets (before allowance)

$

4,712,731


4,558,000


4,468,849


4,329,412


4,194,090


4,509,431


3,866,598

   Total assets

$

5,010,786


4,856,611


4,752,858


4,578,887


4,459,370


4,801,134


4,133,568

   Noninterest-bearing deposits

$

1,708,052


1,641,158


1,619,976


1,510,334


1,478,616


1,620,480


1,291,542

   Interest-bearing deposits

$

2,194,644


2,125,920


2,074,759


2,026,896


1,936,069


2,106,070


1,823,266

   Total deposits

$

3,902,696


3,767,078


3,694,735


3,537,230


3,414,685


3,726,550


3,114,808

   Total borrowed funds

$

632,036


614,061


594,199


576,645


588,100


604,414


574,347

   Total interest-bearing liabilities

$

2,826,680


2,739,981


2,668,958


2,603,541


2,524,169


2,710,484


2,397,613

   Shareholders' equity

$

455,084


455,902


445,930


443,548


438,171


450,171


427,505

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SOURCE Mercantile Bank Corporation

The above press release was provided courtesy of PRNewswire. The views, opinions and statements in the press release are not endorsed by Gray Media Group nor do they necessarily state or reflect those of Gray Media Group, Inc.