PR Newswire | Jan 19, 2021 06:01AM EST

Results

01/19 05:01 CST

Mercantile Bank Corporation Announces Strong Fourth Quarter and Full Year 2020 ResultsSubstantial increase in mortgage banking income and sustained strength in asset quality metrics highlight 2020 GRAND RAPIDS, Mich., Jan. 19, 2021

GRAND RAPIDS, Mich., Jan. 19, 2021 /PRNewswire/ --Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $14.1 million, or $0.87 per diluted share, for the fourth quarter of 2020, compared with net income of $13.3 million, or $0.81 per diluted share, for the respective prior-year period. For the full year 2020, Mercantile reported net income of $44.1 million, or $2.71 per diluted share, compared with net income of $49.5 million, or $3.01 per diluted share, for the full year 2019.

"We are very pleased to report another year of strong financial performance, especially when considering the unprecedented operating environment posed by the ongoing COVID-19 pandemic," said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. "The strategic initiatives we implemented to address the challenges stemming from the pandemic have proven to be effective, and we continue to monitor economic conditions to ensure potential future risks are appropriately managed. The remarkable efforts of the entire Mercantile team enabled us to continue to effectively assist and support our clients with their banking needs during this period of uncertainty."

Full year highlights include:

* Solid capital position * Continued strong asset quality metrics * Paycheck Protection Program loan fundings of approximately $555 million * Sustained strength in commercial loan and residential mortgage loan pipelines * Significant increase in mortgage banking income and growth in certain other key fee income categories * Robust local deposit growth * Controlled overhead costs * Opened new mortgage lending centers in Midland, Michigan and Cincinnati, Ohio * Announced first quarter 2021 regular cash dividend of $0.29 per common share, an increase of 3.6 percent from the regular cash dividend paid during the fourth quarter of 2020

Write-downs of former branch facilities decreased net income during the fourth quarter of 2020 by approximately $1.1 million, or $0.06 per diluted share, and net gains and losses on sales and write-downs of former branch facilities decreased net income during the fourth quarter of 2019 by approximately $0.3 million, or $0.02 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.10, or 12.0 percent, during the fourth quarter of 2020 compared to the respective 2019 period.

A combination of a gain on sale and write-downs of former branch facilities decreased net income during 2020 by approximately $1.1 million, or $0.07 per diluted share. Bank owned life insurance claims and the net impact of gains and losses on sales and write-downs of former branch facilities increased net income during 2019 by approximately $2.7 million, or $0.16 per diluted share. Excluding the impacts of these transactions, diluted earnings per share decreased $0.07, or 2.5 percent, during 2020 compared to 2019.

Operating Results

Total revenue, which consists of net interest income and noninterest income, was $46.2 million during the fourth quarter of 2020, up $7.7 million, or 20.0 percent, from the prior-year fourth quarter. Net interest income during the fourth quarter of 2020 was $31.8 million, up $0.7 million, or 2.2 percent, from the fourth quarter of 2019, reflecting the positive impact of earning asset growth, which more than offset a decreased net interest margin. Noninterest income totaled $14.3 million during the fourth quarter of 2020, up $7.0 million from the respective 2019 period, mainly due to increased mortgage banking income. Total revenue was $167 million during the full year 2020, up $15.9 million, or 10.5 percent, from 2019. Net interest income was $122 million in 2020, down $2.3 million, or 1.8 percent, from the prior year, depicting a reduced net interest margin, which more than offset the positive impact of earning asset growth. Noninterest income totaled $45.2 million during 2020, up $18.2 million from 2019, mainly due to a higher level of mortgage banking income.

The net interest margin was 3.00 percent in the fourth quarter of 2020, compared to 3.63 percent in the fourth quarter of 2019. The yield on average earning assets was 3.55 percent during the fourth quarter of 2020, down from 4.61 percent during the prior-year fourth quarter, mainly due to a decreased yield on commercial loans, which equaled 4.41 percent in the current-year fourth quarter compared to 5.12 percent in the respective 2019 period. The decreased yield on commercial loans primarily reflected reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee significantly lowering the targeted federal funds rate by a total of 175 basis points during the fourth quarter of 2019 and first three months of 2020. A significant volume of excess on-balance sheet liquidity consisting of low-yielding deposits with the Federal Reserve Bank of Chicago and a correspondent bank negatively impacted the yield on average earning assets during the fourth quarter of 2020. The excess funds are mainly a product of federal government stimulus programs as well as lower business and consumer investing and spending. Lower yields on interest-earning deposits and securities, reflecting the decreasing interest rate environment, also contributed to the reduced yield on average earning assets.

The cost of funds declined from 0.98 percent during the fourth quarter of 2019 to 0.55 percent during the current-year fourth quarter, primarily due to lower rates paid on local deposit accounts and borrowings, reflecting the declining interest rate environment. A change in funding mix, consisting of an increase in lower-costing non-time deposits as a percentage of total funding sources, also contributed to the decrease in the cost of funds.

The net interest margin was 3.15 percent in 2020, compared to 3.75 percent in 2019. The yield on average earning assets was 3.82 percent during 2020, down from 4.77 percent during 2019, primarily due to a decreased yield on commercial loans, which equaled 4.35 percent in 2020 compared to 5.21 percent in 2019. The decreased yield on commercial loans mainly reflected reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee significantly lowering the targeted federal funds rate by a total of 225 basis points during the last six months of 2019 and the first three months of 2020. A substantial volume of excess on-balance sheet liquidity consisting of low-yielding deposits with the Federal Reserve Bank of Chicago and a correspondent bank negatively impacted the yield on average earning assets during 2020. The excess funds are primarily a product of federal government stimulus programs as well as lower business and consumer investing and spending. A lower yield on interest-earning deposits, reflecting the decreasing interest rate environment, also contributed to the reduced yield on average earning assets. Accelerated discount accretion on called U.S. Government agency bonds totaling $3.0 million was recorded as interest income during 2020. The accelerated discount accretion positively impacted the net interest margin during 2020 by eight basis points.

The cost of funds equaled 0.67 percent during 2020, down from 1.02 percent during 2019, mainly due to reduced rates paid on local deposit accounts and borrowings, reflecting the declining interest rate environment. A change in funding mix, consisting of an increase in lower-costing non-time deposits as a percentage of total funding sources, also contributed to the decrease in the cost of funds.

Mercantile recorded provision expense of $2.5 million during the fourth quarter of 2020, compared to negative $0.7 million during the fourth quarter of 2019. During 2020 and 2019, Mercantile recorded provision expense of $14.1 million and $1.8 million, respectively. Approximately 80 percent of the provision expense recorded during 2020 is reflective of increased allocations associated with qualitative factors, namely economic conditions, loan review and value of underlying collateral dependent commercial loans, as well as 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. The provision expense recorded during the fourth quarter of 2020 was fully reflective of increased allocations associated with qualitative factors. The provision expense recorded during 2020 also reflected the downgrading of certain non-impaired commercial loan relationships, most of which occurred during the third quarter. The negative provision expense during the prior-year fourth quarter mainly reflected certain commercial loan paydowns and net loan recoveries being recorded during the period. The provision expense recorded during 2019 primarily reflected ongoing net loan growth.

Noninterest income during the fourth quarter of 2020 was $14.3 million, compared to $7.3 million during the prior-year fourth quarter. Noninterest income during the fourth quarter of 2019 included a $0.3 million gain on the sale of a former branch facility. Excluding the aforementioned transaction, noninterest income increased $7.3 million, or approximately 103 percent, during the fourth quarter of 2020 compared to the respective 2019 period. Noninterest income during 2020 was $45.2 million, compared to $27.0 million during 2019. Noninterest income during 2019 included bank owned life insurance claims totaling $2.6 million and gains on the sales of former branch facilities totaling $0.8 million. Excluding these transactions, noninterest income increased $21.7 million, or 92.1 percent, during 2020 compared to 2019. The improved level of noninterest income in both 2020 periods primarily resulted from increased mortgage banking income stemming from a sizeable upturn in refinance activity spurred by a decrease in residential mortgage loan interest rates, an increase in purchase activity, and the continuing success of strategic initiatives that were implemented to gain market share. Fee income generated from an interest rate swap program that was implemented during the fourth quarter of 2020 and growth in credit and debit card income also contributed to the improved noninterest income during both 2020 periods. 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. In addition, increased payroll processing fees contributed to the higher level of noninterest income during the full year 2020 period.

Noninterest expense totaled $25.9 million during the fourth quarter of 2020, compared to $23.3 million during the fourth quarter of 2019. Noninterest expense totaled $98.5 million during 2020, compared to $89.3 million during 2019. Overhead costs during the fourth quarter of 2020 and full year 2020 included write-downs of former branch facilities totaling $1.4 million, while overhead costs during the prior-year fourth quarter and full year 2019 included a loss on the sale of a former branch facility of $0.5 million and a write-down of a former branch facility of $0.1 million. Excluding these transactions, noninterest expense increased $1.8 million, or 8.1 percent, during the fourth quarter of 2020 compared to the respective 2019 period, and $8.5 million, or 9.6 percent, during 2020 compared to 2019. The higher level of expense in both 2020 periods primarily resulted from increased compensation costs, mainly reflecting higher residential mortgage lender commissions and related incentives, annual employee merit pay increases, and an increased bonus accrual. The higher level of commissions and associated incentives primarily depicted the significant increase in residential mortgage loan originations during the fourth quarter of 2020 and full year 2020, which were up nearly 98 percent and 135 percent compared to the respective 2019 periods. Occupancy and equipment and furniture costs were up $1.7 million on a combined basis during 2020 compared to 2019, mainly reflecting increased depreciation expense associated with an expansion of Mercantile's main office that was completed during the latter part of 2019. Federal Deposit Insurance Corporation insurance premiums increased $0.4 million in the fourth quarter of 2020 compared to the fourth quarter of 2019, and $0.9 million in 2020 compared to 2019, mainly as a result of deposit insurance assessment credits being applied against regular assessments during the last three quarters of 2019.

Mr. Kaminski commented, "The record-breaking level of mortgage banking income during 2020 reflects strong residential mortgage loan production and the ongoing success of our strategic initiatives that were designed to boost market share and increase revenue. We remain focused on positioning ourselves to produce solid mortgage banking income in future periods, as evidenced by the opening of mortgage lending centers in Midland, Michigan and Cincinnati, Ohio during 2020. We are also continually exploring options to enhance other noninterest income revenue streams, and are pleased with the growth in certain key fee income categories during 2020. We are committed to meeting growth objectives in a cost-conscious, efficient manner and continue to monitor our branch network and associated customer behaviors and preferences, which may have been altered as a result of the COVID-19 pandemic. As part of a branch network efficiency plan, we closed three branch facilities during the fourth quarter of 2020, which is expected to generate annual pre-tax savings of approximately $0.7 million."

Balance Sheet

As of December 31, 2020, total assets were $4.44 billion, up $804 million, or 22.1 percent, from December 31, 2019. Total loans increased $360 million during 2020, primarily reflecting Paycheck Protection Program loan originations of $555 million during the second and third quarters. Paycheck Protection Program loans totaled approximately $365 million as of December 31, 2020, reflecting forgiveness payments received from the Small Business Administration during the fourth quarter. Commercial lines of credit remained relatively steady during the last six months of 2020 after having declined $109 million during the second quarter of 2020 largely due to the impacts of the COVID-19 pandemic environment and federal government stimulus programs. As of December 31, 2020, unfunded commitments on commercial construction and development loans totaled approximately $99 million, which are expected to be largely funded over the next 12 to 18 months. Interest-earning deposits increased $383 million during 2020, mainly resulting from growth in local deposits.

Ray Reitsma, President of Mercantile Bank of Michigan, noted, "Although economic conditions deteriorated as a result of the COVID-19 pandemic, our asset quality metrics remained strong throughout 2020. The sustained strength in our asset quality metrics reflects our unwavering commitment to sound underwriting, along with the relationships we have forged with solid companies that have strong management teams that are working diligently to enable the entities to successfully navigate through the challenges posed by the pandemic. Our past due loan and nonperforming asset levels remain low, and virtually all commercial and retail loan customers that were granted loan payment deferrals are now making full contractual loan payments."

Mr. Reitsma added, "We were very successful in helping customers obtain funds under the Paycheck Protection Program, as depicted by the over 2,000 loans, totaling approximately $555 million, closed during 2020. The efforts of our team were recognized in the marketplace, providing us with many new loan and deposit relationship opportunities. Over the past few months, we have been focused on assisting loan recipients in the gathering and submitting of the required information to allow for the rendering of forgiveness determinations by the Small Business Administration. Although our team devoted a significant amount of time assisting customers in meeting pandemic-related challenges, we remained focused on identifying and attracting new client relationships and meeting the traditional needs of our existing customers. We are pleased with the ongoing strength of our commercial loan and residential mortgage loan pipelines."

Excluding the impact of Paycheck Protection Program loan originations, commercial and industrial loans and owner-occupied commercial real estate loans together represented approximately 55 percent of total commercial loans as of December 31, 2020, a level that has remained relatively consistent and in line with internal expectations.

Total deposits at December 31, 2020, were $3.41 billion, up $721 million, or 26.8 percent, from December 31, 2019. Local deposits were up $808 million during 2020, while brokered deposits were down $86.5 million. The growth in local deposits mainly reflected federal government stimulus payments and reduced business and consumer investing and spending, along with 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, 2020. Wholesale funds were $441 million, or approximately 11 percent of total funds, as of December 31, 2020, compared to $487 million, or approximately 15 percent of total funds, as of December 31, 2019.

Asset Quality

Nonperforming assets at December 31, 2020, were $4.1 million, or 0.1 percent of total assets, compared to $2.7 million, or 0.1 percent of total assets, at December 31, 2019. During the fourth quarter of 2020, loan charge-offs totaled $0.3 million while recoveries of prior period loan charge-offs equaled $0.2 million, providing for net loan charge-offs of $0.1 million, or 0.01 percent of average total loans. During 2020, recoveries of prior period loan charge-offs totaling $0.9 million slightly exceeded loan charge-offs, providing for a nominal level of net loan recoveries.

Capital Position

Shareholders' equity totaled $442 million as of December 31, 2020, an increase of $25.0 million from year-end 2019. The Bank's capital position remains above "well-capitalized" with a total risk-based capital ratio of 13.5 percent as of December 31, 2020, compared to 13.0 percent at December 31, 2019. At December 31, 2020, the Bank had approximately $118 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a "well-capitalized" institution. Mercantile reported 16,330,476 total shares outstanding at December 31, 2020.

As part of a $20 million common stock repurchase program announced in May 2019, Mercantile repurchased approximately 222,000 shares for $6.3 million, or a weighted average all-in cost per share of $28.25, during the first quarter of 2020. After electing to temporarily cease stock repurchases in March 2020 to preserve capital for lending and other purposes while management assessed the potential impacts of the COVID-19 pandemic, Mercantile reinstated the buyback program during the fourth quarter of 2020; fourth quarter repurchases totaled about 14,000 shares for $0.3 million, or a weighted average all-in cost per share of $22.05.

Mr. Kaminski concluded, "We are focused on positioning our company to remain a consistent high performer that provides steady and profitable growth and an attractive return to our investors. Our strong operating performance during 2020 enabled us to continue the cash dividend program and provide our shareholders with a cash return on their investments in spite of the challenges presented by the COVID-19 pandemic and associated weakened economic conditions. We were pleased to announce earlier today that our Board of Directors declared an increased first quarter 2021 regular cash dividend. We are passionate about our Environmental, Social, and Governance initiatives and the opportunities that exist in that space going forward. During 2020, we established new Diversity, Equity, and Inclusion initiatives in light of the racial justice discussions taking place in our country and communities, including ongoing conversations among our staff members, and we look forward to continuing our social awareness efforts in future periods. We are excited about Mercantile's future and believe we are positioned to produce solid operating results in 2021."

Investor Presentation

Mercantile has prepared presentation materials (the "Conference Call & Webcast Presentation") that management intends to use during its previously announced fourth quarter 2020 conference call on Tuesday, January 19, 2021, 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 more detailed information relating to Mercantile's COVID-19 pandemic response plan. 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 $4.4 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 comments or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such comments 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; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; our participation in the Paycheck Protection Program administered by the Small Business Administration; 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 contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies, including the significant disruption to financial market and other economic activity caused by the outbreak of COVID-19; and other factors, including 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.

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 2020 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

DECEMBER 31, DECEMBER 31, DECEMBER 31,

2020 2019 2018

ASSETS

Cash and due from banks $ 62,832,000 $ 53,262,000 $ 64,872,000

Interest-earning deposits 563,174,000 180,469,000 10,482,000

Total cash and cash equivalents 626,006,000 233,731,000 75,354,000

Securities available for sale 387,347,000 334,655,000 337,366,000

Federal Home Loan Bank stock 18,002,000 18,002,000 16,022,000

Loans 3,216,358,000 2,856,667,000 2,753,085,000

Allowance for loan losses (37,967,000) (23,889,000) (22,380,000)

Loans, net 3,178,391,000 2,832,778,000 2,730,705,000

Premises and equipment, net 58,959,000 57,327,000 48,321,000

Bank owned life insurance 72,131,000 70,297,000 69,647,000

Goodwill 49,473,000 49,473,000 49,473,000

Core deposit intangible, net 2,436,000 3,840,000 5,561,000

Other assets 44,599,000 32,812,000 31,458,000

Total assets $ 4,437,344,000 $ 3,632,915,000 $ 3,363,907,000

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing $ 1,433,403,000 $ 924,916,000 $ 889,784,000

Interest-bearing 1,978,150,000 1,765,468,000 1,573,924,000

Total deposits 3,411,553,000 2,690,384,000 2,463,708,000

Securities sold under agreements to repurchase 118,365,000 102,675,000 103,519,000

Federal Home Loan Bank advances 394,000,000 354,000,000 350,000,000

Subordinated debentures 47,563,000 46,881,000 46,199,000

Accrued interest and other liabilities 24,309,000 22,414,000 25,232,000

Total liabilities 3,995,790,000 3,216,354,000 2,988,658,000

SHAREHOLDERS' EQUITY

Common stock 302,029,000 305,035,000 308,005,000

Retained earnings 134,039,000 107,831,000 75,483,000

Accumulated other comprehensive income/(loss) 5,486,000 3,695,000 (8,239,000)

Total shareholders' equity 441,554,000 416,561,000 375,249,000

Total liabilities and shareholders' equity $ 4,437,344,000 $ 3,632,915,000 $ 3,363,907,000

Mercantile Bank Corporation

Fourth Quarter 2020 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

THREE MONTHS ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

INTEREST INCOME

Loans, including fees $ 35,971,000 $ 36,257,000 $ 137,399,000 $ 145,816,000

Investment securities 1,484,000 2,563,000 10,038,000 10,150,000

Other interest-earning assets 165,000 744,000 876,000 2,371,000

Total interest income 37,620,000 39,564,000 148,313,000 158,337,000

INTEREST EXPENSE

Deposits 3,176,000 5,358,000 14,984,000 21,264,000

Short-term borrowings 41,000 51,000 173,000 295,000

Federal Home Loan Bank advances 2,072,000 2,226,000 8,571,000 8,977,000

Other borrowed money 482,000 761,000 2,339,000 3,267,000

Total interest expense 5,771,000 8,396,000 26,067,000 33,803,000

Net interest income 31,849,000 31,168,000 122,246,000 124,534,000

Provision for loan losses 2,500,000 (700,000) 14,050,000 1,750,000

Net interest income after

provision for loan losses 29,349,000 31,868,000 108,196,000 122,784,000

NONINTEREST INCOME

Service charges on accounts 1,177,000 1,178,000 4,578,000 4,584,000

Mortgage banking income 9,600,000 3,194,000 29,346,000 8,485,000

Credit and debit card income 1,602,000 1,528,000 5,973,000 5,925,000

Payroll services 399,000 399,000 1,745,000 1,626,000

Earnings on bank owned life insurance 281,000 319,000 1,214,000 3,886,000

Interest rate swap income 932,000 0 932,000 0

Other income 342,000 694,000 1,384,000 2,450,000

Total noninterest income 14,333,000 7,312,000 45,172,000 26,956,000

NONINTEREST EXPENSE

Salaries and benefits 15,411,000 13,851,000 59,799,000 53,833,000

Occupancy 2,006,000 1,972,000 7,950,000 7,061,000

Furniture and equipment 850,000 698,000 3,350,000 2,583,000

Data processing costs 2,647,000 2,381,000 10,440,000 9,235,000

Other expense 5,027,000 4,433,000 16,981,000 16,568,000

Total noninterest expense 25,941,000 23,335,000 98,520,000 89,280,000

Income before federal income

tax expense 17,741,000 15,845,000 54,848,000 60,460,000

Federal income tax expense 3,659,000 2,528,000 10,710,000 11,004,000

Net Income $ 14,082,000 $ 13,317,000 $ 44,138,000 $ 49,456,000

Basic earnings per share $0.87 $0.81 $2.71 $3.01

Diluted earnings per share $0.87 $0.81 $2.71 $3.01

Average basic shares outstanding 16,279,052 16,373,458 16,268,689 16,405,159

Average diluted shares outstanding 16,279,243 16,375,740 16,269,319 16,409,135

Mercantile Bank Corporation

Fourth Quarter 2020 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

Quarterly Year-To-Date

(dollars in thousands except per share data) 2020 2020 2020 2020 2019

4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 2020 2019

EARNINGS

Net interest income $ 31,849 29,509 30,571 30,317 31,168 122,246 124,534

Provision for loan losses $ 2,500 3,200 7,600 750 (700) 14,050 1,750

Noninterest income $ 14,333 13,307 10,984 6,550 7,312 45,172 26,956

Noninterest expense $ 25,941 26,423 23,216 22,940 23,335 98,520 89,280

Net income before federal income

tax expense $ 17,741 13,193 10,739 13,177 15,845 54,848 60,460

Net income $ 14,082 10,686 8,698 10,673 13,317 44,138 49,456

Basic earnings per share $ 0.87 0.66 0.54 0.65 0.81 2.71 3.01

Diluted earnings per share $ 0.87 0.66 0.54 0.65 0.81 2.71 3.01

Average basic shares outstanding 16,279,052 16,233,196 16,212,500 16,350,281 16,373,458 16,268,689 16,405,159

Average diluted shares outstanding 16,279,243 16,233,666 16,213,264 16,351,559 16,375,740 16,269,319 16,409,135

PERFORMANCE RATIOS

Return on average assets 1.25% 0.98% 0.85% 1.19% 1.45% 1.07% 1.39%

Return on average equity 12.75% 9.86% 8.26% 10.20% 12.87% 10.32% 12.52%

Net interest margin (fully tax-equivalent) 3.00% 2.86% 3.17% 3.63% 3.63% 3.15% 3.75%

Efficiency ratio 56.17% 61.71% 55.87% 62.22% 60.64% 58.85% 58.93%

Full-time equivalent employees 621 618 637 626 619 621 619

YIELD ON ASSETS / COST OF FUNDS

Yield on loans 4.34% 4.03% 4.18% 4.69% 5.01% 4.31% 5.11%

Yield on securities 1.69% 2.26% 3.37% 4.73% 2.90% 3.00% 2.89%

Yield on other interest-earning assets 0.12% 0.12% 0.15% 1.22% 1.65% 0.25% 2.07%

Yield on total earning assets 3.55% 3.45% 3.85% 4.54% 4.61% 3.82% 4.77%

Yield on total assets 3.35% 3.25% 3.62% 4.23% 4.31% 3.59% 4.45%

Cost of deposits 0.37% 0.41% 0.48% 0.70% 0.79% 0.48% 0.81%

Cost of borrowed funds 1.75% 1.78% 1.91% 2.31% 2.36% 1.93% 2.39%

Cost of interest-bearing liabilities 0.91% 0.99% 1.11% 1.36% 1.47% 1.09% 1.50%

Cost of funds (total earning assets) 0.55% 0.59% 0.68% 0.91% 0.98% 0.67% 1.02%

Cost of funds (total assets) 0.51% 0.56% 0.64% 0.85% 0.91% 0.63% 0.95%

PURCHASE ACCOUNTING ADJUSTMENTS

Loan portfolio - increase interest income $ 158 332 169 285 316 944 1,423

Trust preferred - increase interest expense $ 171 171 171 171 171 684 684

Core deposit intangible - increase overhead $ 318 318 371 397 397 1,404 1,721

MORTGAGE BANKING ACTIVITY

Total mortgage loans originated $ 218,904 237,195 275,486 132,859 110,611 864,444 368,600

Purchase mortgage loans originated $ 99,490 93,068 58,015 46,538 49,407 297,111 183,123

Refinance mortgage loans originated $ 119,414 144,127 217,471 86,321 61,204 567,333 185,477

Mortgage loans originated to sell $ 159,942 191,318 225,665 95,327 81,590 672,252 257,378

Net gain on sale of mortgage loans $ 9,476 10,199 7,760 2,086 3,062 29,521 8,065

CAPITAL

Tangible equity to tangible assets 8.89% 8.69% 8.74% 10.14% 10.15% 8.89% 10.15%

Tier 1 leverage capital ratio 9.77% 9.80% 10.21% 11.47% 11.28% 9.77% 11.28%

Common equity risk-based capital ratio 11.34% 11.37% 11.34% 10.92% 11.00% 11.34% 11.00%

Tier 1 risk-based capital ratio 12.68% 12.74% 12.74% 12.28% 12.36% 12.68% 12.36%

Total risk-based capital ratio 13.80% 13.82% 13.73% 13.03% 13.09% 13.80% 13.09%

Tier 1 capital $ 430,146 420,225 412,526 406,445 405,148 430,146 405,148

Tier 1 plus tier 2 capital $ 468,113 455,797 444,772 431,273 429,038 468,113 429,038

Total risk-weighted assets $ 3,391,563 3,298,047 3,238,444 3,309,336 3,276,754 3,391,563 3,276,754

Book value per common share $ 27.04 26.59 26.20 25.82 25.36 27.04 25.36

Tangible book value per common share $ 23.86 23.37 22.96 22.55 22.12 23.86 22.12

Cash dividend per common share $ 0.28 0.28 0.28 0.28 0.27 1.12 1.06

ASSET QUALITY

Gross loan charge-offs $ 340 124 335 40 112 839 883

Recoveries $ 234 250 153 229 287 866 642

Net loan charge-offs (recoveries) $ 106 (126) 182 (189) (175) (27) 241

Net loan charge-offs to average loans 0.01% (0.02%) 0.02% (0.03%) (0.02%) (0.01%) 0.01%

Allowance for loan losses $ 37,967 35,572 32,246 24,828 23,889 37,967 23,889

Allowance to loans 1.18% 1.06% 0.97% 0.86% 0.84% 1.18% 0.84%

Allowance to loans excluding PPP loans 1.33% 1.27% 1.16% 0.86% 0.84% 1.33% 0.84%

Nonperforming loans $ 3,384 4,141 3,212 3,469 2,284 3,384 2,284

Other real estate/repossessed assets $ 701 512 198 271 452 701 452

Nonperforming loans to total loans 0.11% 0.12% 0.10% 0.12% 0.08% 0.11% 0.08%

Nonperforming assets to total assets 0.09% 0.11% 0.08% 0.10% 0.08% 0.09% 0.08%

NONPERFORMING ASSETS - COMPOSITION

Residential real estate:

Land development $ 35 36 36 37 34 35 34

Construction $ 0 198 198 283 0 0 0

Owner occupied / rental $ 2,607 2,597 2,750 2,922 2,364 2,607 2,364

Commercial real estate:

Land development $ 0 0 0 43 0 0 0

Construction $ 0 0 0 0 0 0 0

Owner occupied $ 1,232 1,576 275 287 326 1,232 326

Non-owner occupied $ 22 23 25 0 0 22 0

Non-real estate:

Commercial assets $ 172 198 98 156 0 172 0

Consumer assets $ 17 25 28 12 12 17 12

Total nonperforming assets 4,085 4,653 3,410 3,740 2,736 4,085 2,736

NONPERFORMING ASSETS - RECON

Beginning balance $ 4,653 3,410 3,740 2,736 2,887 2,736 4,952

Additions $ 972 1,615 220 1,344 30 4,151 934

Other activity $ 0 0 0 (31) 135 (31) 226

Return to performing status $ 0 (72) (26) (7) 0 (105) (126)

Principal payments $ (1,064) (249) (278) (110) (232) (1,701) (2,140)

Sale proceeds $ (245) 0 (49) (192) (36) (486) (792)

Loan charge-offs $ (231) (51) (173) 0 (48) (455) (289)

Valuation write-downs $ 0 0 (24) 0 0 (24) (29)

Ending balance $ 4,085 4,653 3,410 3,740 2,736 4,085 2,736

LOAN PORTFOLIO COMPOSITION

Commercial:

Commercial & industrial $ 1,145,423 1,321,419 1,307,456 873,679 846,551 1,145,423 846,551

Land development & construction $ 55,055 50,941 52,984 62,908 56,118 55,055 56,118

Owner occupied comm'l R/E $ 529,953 549,364 567,621 579,229 579,004 529,953 579,004

Non-owner occupied comm'l R/E $ 917,436 878,897 841,145 823,366 835,345 917,436 835,345

Multi-family & residential rental $ 146,095 137,740 132,047 133,148 124,526 146,095 124,526

Total commercial $ 2,793,962 2,938,361 2,901,253 2,472,330 2,441,544 2,793,962 2,441,544

Retail:

1-4 family mortgages $ 360,776 348,460 367,060 356,338 339,749 360,776 339,749

Home equity & other consumer $ 61,620 63,723 64,743 72,875 75,374 61,620 75,374

Total retail $ 422,396 412,183 431,803 429,213 415,123 422,396 415,123

Total loans $ 3,216,358 3,350,544 3,333,056 2,901,543 2,856,667 3,216,358 2,856,667

END OF PERIOD BALANCES

Loans $ 3,216,358 3,350,544 3,333,056 2,901,543 2,856,667 3,216,358 2,856,667

Securities $ 405,349 330,426 325,663 330,149 352,657 405,349 352,657

Other interest-earning assets $ 563,174 495,308 386,711 186,938 180,469 563,174 180,469

Total earning assets (before allowance) $ 4,184,881 4,176,278 4,045,430 3,418,630 3,389,793 4,184,881 3,389,793

Total assets $ 4,437,344 4,420,610 4,314,379 3,657,387 3,632,915 4,437,344 3,632,915

Noninterest-bearing deposits $ 1,433,403 1,449,879 1,445,620 956,290 924,916 1,433,403 924,916

Interest-bearing deposits $ 1,978,150 1,922,155 1,816,660 1,689,126 1,765,468 1,978,150 1,765,468

Total deposits $ 3,411,553 3,372,034 3,262,280 2,645,416 2,690,384 3,411,553 2,690,384

Total borrowed funds $ 562,360 600,892 611,298 576,996 506,301 562,360 506,301

Total interest-bearing liabilities $ 2,540,510 2,523,047 2,427,958 2,266,122 2,271,769 2,540,510 2,271,769

Shareholders' equity $ 441,554 431,900 425,221 418,389 416,561 441,554 416,561

AVERAGE BALANCES

Loans $ 3,288,845 3,315,741 3,294,883 2,861,047 2,871,674 3,190,742 2,853,021

Securities $ 365,631 327,668 333,843 344,906 362,347 343,032 359,512

Other interest-earning assets $ 559,593 457,598 251,833 153,638 176,034 356,501 114,527

Total earning assets (before allowance) $ 4,214,069 4,101,007 3,880,559 3,359,591 3,410,055 3,890,275 3,327,060

Total assets $ 4,459,370 4,346,624 4,119,573 3,602,784 3,650,087 4,133,568 3,561,645

Noninterest-bearing deposits $ 1,478,616 1,454,887 1,304,986 923,827 948,602 1,291,542 902,180

Interest-bearing deposits $ 1,936,069 1,863,302 1,767,985 1,724,030 1,759,377 1,823,266 1,722,535

Total deposits $ 3,414,685 3,318,189 3,072,971 2,647,957 2,707,979 3,114,808 2,624,715

Total borrowed funds $ 588,100 583,994 607,074 517,961 509,932 574,347 525,745

Total interest-bearing liabilities $ 2,524,169 2,447,296 2,375,059 2,241,991 2,269,309 2,397,613 2,248,280

Shareholders' equity $ 438,171 429,865 422,230 419,612 410,593 427,505 394,913

MBWM-ER

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SOURCE Mercantile Bank of Michigan