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Mercantile Bank Corporation Announces Strong Fourth Quarter and Full-Year 2022 Results

MBWM

Substantial increase in net interest income, solid loan growth, and continuing strength in asset quality metrics highlight 2022

GRAND RAPIDS, Mich., Jan. 17, 2023 /PRNewswire/ -- Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $21.8 million, or $1.37 per diluted share, for the fourth quarter of 2022, compared with net income of $11.6 million, or $0.74 per diluted share, for the respective prior-year period. For the full-year 2022, Mercantile reported net income of $61.1 million, or $3.85 per diluted share, compared with net income of $59.0 million, or $3.69 per diluted share, for the full-year 2021.

"The momentum generated during the first nine months of 2022 was sustained in the fourth quarter, resulting in another year of outstanding operating results," said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. "Our robust financial results during 2022 reflect a significantly higher level of net interest income, strong growth in commercial loans and residential mortgage loans, increases in treasury management fee income revenue streams, disciplined overhead cost management, solid capital levels, and ongoing strength in asset quality metrics. The increased net interest income, in large part reflecting an improved net interest margin, more than offset a substantial decline in mortgage banking income. Our team's focus on meeting the banking needs of existing customers and cultivating new client relationships has been paramount to our financial success, and we look forward to continuing to serve as a trusted advisor and helping our customers navigate through the challenges associated with the current operating environment."

Full-year highlights include:

  • Significant increase in net interest income depicting net interest margin expansion and loan growth
  • Noteworthy increases in treasury management fee income
  • Strong commercial loan and residential mortgage loan growth
  • Ongoing strength in commercial loan pipeline
  • Sustained low levels of nonperforming assets and loan charge-offs
  • Solid capital position
  • Announced first quarter 2023 regular cash dividend of $0.33 per common share, an increase of over 3 percent from the regular cash dividend paid during the fourth quarter of 2022

Operating Results

Total revenue, which consists of net interest income and noninterest income, was $58.5 million during the fourth quarter of 2022, up $13.3 million, or 29.4 percent, from $45.2 million during the prior-year fourth quarter. Net interest income during the fourth quarter of 2022 was $50.6 million, up $18.1 million, or 55.7 percent, from $32.5 million during the respective 2021 period, primarily reflecting increased yields on earning assets and loan growth. Noninterest income totaled $7.8 million during the fourth quarter of 2022, down from $12.6 million during the fourth quarter of 2021 mainly due to decreased mortgage banking income, which more than offset increases in other fee income categories.

The net interest margin was 4.30 percent in the fourth quarter of 2022, up from 3.56 percent in the third quarter of 2022 and 2.74 percent in the prior-year fourth quarter. The yield on average earning assets was 4.95 percent during the fourth quarter of 2022, up from 4.04 percent during the third quarter of 2022 and 3.12 percent during the fourth quarter of 2021. The increased yield on average earning assets primarily resulted from a higher yield on loans; a change in earning asset mix, comprised of a decrease in lower-yielding interest-earning deposits and an increase in higher-yielding loans as a percentage of earning assets, along with increased yields on other interest-earning assets and securities, reflecting the increasing interest rate environment, also contributed to the higher yield on average earning assets. The yield on loans was 5.49 percent during the fourth quarter of 2022, up from 4.56 percent during the third quarter of 2022 and 4.07 percent during the prior-year fourth quarter mainly due to higher interest rates on variable-rate commercial loans stemming from the Federal Open Market Committee ("FOMC") significantly raising the targeted federal funds rate in an effort to curb elevated inflation levels. The FOMC increased the targeted federal funds rate by 425 basis points during the period of March 2022 through December 2022. The increase in loan yield during the fourth quarter of 2022 compared to the respective 2021 period was achieved despite a significant reduction in Paycheck Protection Program ("PPP") net loan fee accretion. As of December 31, 2022, approximately 65 percent of the commercial loan portfolio consisted of variable-rate loans.

The cost of funds was 0.65 percent in the fourth quarter of 2022, up from 0.48 percent in the third quarter of 2022 and 0.38 percent in the prior-year fourth quarter primarily due to higher costs of deposits and trust preferred securities, reflecting the impact of the rising interest rate environment. The issuance of subordinated notes totaling $90 million in December of 2021 and January of 2022 also contributed to the higher cost of funds in the fourth quarter of 2022 compared to respective 2021 period. Subordinated note issuance proceeds of $85.0 million were injected into Mercantile Bank as an increase to equity capital to support expected loan growth.

Total revenue was $190 million during 2022, up $10.0 million, or 5.6 percent, from 2021. Net interest income during 2022 was $158 million, up $34.2 million, or 27.6 percent, from $124 million during 2021 mainly due to an improved net interest margin and loan growth. Noninterest income totaled $32.1 million during 2022, down from $56.2 million during 2021 primarily due to lower levels of mortgage banking income and interest rate swap income. Growth in treasury management fee income categories and a bank owned life insurance claim partially offset the declines in these two revenue streams.

The net interest margin was 3.32 percent in 2022, up from 2.76 percent in 2021. The yield on average earning assets was 3.82 percent during 2022, up from 3.19 percent during 2021, mainly due to an increased yield on loans and the aforementioned change in earning asset mix. Higher yields on other interest-earning assets and securities, reflecting the increased interest rate environment, also contributed to the improved yield on earning assets. The loan yield was 4.50 percent during 2022, up from 4.06 percent during 2021, primarily reflecting the impact of the previously mentioned FOMC rate hikes, which more than offset a substantially lower level of PPP net loan fee accretion.

The cost of funds increased from 0.43 percent in 2021 to 0.50 percent in 2022 mainly due to higher costs of non-time deposits and trust preferred securities, reflecting the increased interest rate environment, along with the previously discussed issuance of subordinated notes.

A significant volume of excess on-balance sheet liquidity, which initially surfaced in the second quarter of 2020 in large part due to government stimulus programs related to the COVID-19 environment, negatively impacted the yield on average earning assets by 24 basis points and 46 basis points during 2022 and 2021, respectively, and the net interest margin by 19 basis points and 39 basis points during the respective periods. The excess funds, consisting almost entirely of low-yielding deposits with the Federal Reserve Bank of Chicago, were mainly a product of local deposit growth and PPP loan forgiveness activities.

Mercantile recorded a provision for credit losses of $3.1 million during the fourth quarter of 2022, compared to a negative provision expense of $3.4 million during the fourth quarter of 2021. During all of 2022 and 2021, Mercantile recorded provisions for credit losses of $6.6 million and negative $4.3 million, respectively. The provision expense recorded during the 2022 periods was necessitated by the net increase in required reserve levels stemming from changes to several environmental factors that largely reflected enhanced inherent risk within the commercial loan and residential mortgage loan portfolios, loan growth, and increased specific reserves for certain distressed loan relationships. A higher reserve for residential mortgage loans reflecting slower principal prepayment rates and the associated extended average life of the portfolio also impacted provision expense during 2022. Economic forecasts were relatively stable during 2022. The negative provision expense recorded during the 2021 periods mainly reflected reduced allocations attributable to improvement in both current and forecasted economic conditions and net loan recoveries in each period, which more than offset required reserve allocations necessitated by loan growth. Mercantile's adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2022, resulted in a $0.4 million one-time reduction to the allowance for credit losses.

Noninterest income during the fourth quarter of 2022 was $7.8 million, compared to $12.6 million during the respective 2021 period. Noninterest income during 2022 was $32.1 million, compared to $56.2 million during 2021. The lower levels of noninterest income primarily stemmed from decreased mortgage banking income, which more than offset growth in several fee income revenue streams, including service charges on accounts, credit and debit card income, and payroll servicing fees. Reduced interest rate swap income, reflecting lower transaction volume, contributed to the decreased level of noninterest income during 2022. Higher interest rates, lower refinance activity, a reduced sold percentage, and a decreased gain on sale rate negatively impacted mortgage banking income during 2022. Sustained strength in purchase mortgage originations during 2022 partially mitigated the impact of these factors. The residential mortgage loan sold percentage declined from approximately 68 percent during 2021 to about 35 percent during 2022, in large part reflecting customers' preferences for adjustable-rate loans in the current interest rate environment and construction loans representing a higher percentage of overall mortgage loan production.

Noninterest expense totaled $28.5 million during the fourth quarter of 2022, compared to $33.3 million during the prior-year fourth quarter. Overhead costs during the fourth quarter of 2022 included a $1.0 million contribution to The Mercantile Bank Foundation ("Foundation"), while overhead costs during the fourth quarter of 2021 included expenses and a charitable contribution associated with the formation and initial funding of the Foundation totaling $4.0 million. Excluding these transactions, noninterest expense decreased $1.8 million, or 6.1 percent, in the fourth quarter of 2022 compared to the respective 2021 period. Noninterest expense during 2022 was $108 million, compared to $111 million during 2021. When excluding contributions to the Foundation, noninterest expense decreased $0.4 million in 2022 compared to 2021.

The lower levels of noninterest expense in the 2022 periods mainly resulted from decreased compensation-related costs, in large part reflecting higher residential mortgage loan deferred salary costs, reduced residential mortgage lender commissions and associated incentives, and lower stock-based compensation costs. The increased residential mortgage loan deferred salary costs reflected the outcome of an updated loan origination cost study and resulting higher allocated cost per loan, while the decreased residential mortgage lender commissions and associated incentives resulted from reduced loan production, in large part reflecting lower refinance activity. Regular salary costs, primarily reflecting annual merit pay increases and market adjustments, and bonus accruals were up in the 2022 periods. Data processing costs, mainly depicting higher transaction volume and software support costs, and other employee costs, consisting mainly of meals, training, travel, and mileage, also increased in the 2022 periods. The higher level of other employee costs primarily reflected the easing of Covid-19 pandemic-related restrictions.

Mr. Kaminski commented, "The significant increase in net interest income during 2022 in large part reflected an improved net interest margin and continued strong loan growth. We believe our balance sheet composition will allow for further net interest income expansion if the FOMC initiates additional interest rate hikes as currently expected. We are very pleased that the higher level of net interest income, an expanded loan portfolio, and increases in treasury management fee income more than offset the substantial decline in mortgage banking income resulting from higher residential mortgage loan interest rates and the related lower level of refinance activity. We remain focused on overhead cost control and are constantly reviewing our expense structure to identify opportunities to operate more efficiently, while continuing to provide outstanding customer service and offer market-leading products and services."

Balance Sheet

As of December 31, 2022, total assets were $4.87 billion, down $385 million from December 31, 2021. Total loans increased $463 million, or 13.4 percent, during 2022, reflecting growth in core commercial loans (excluding PPP loans) and residential mortgage loans of $221 million and $283 million, respectively, which more than offset a reduction in Paycheck Protection Program loans of $39.2 million.

Commercial loans decreased $11.5 million during the fourth quarter of 2022, while residential mortgage loans grew $49.5 million. The decrease in commercial loans primarily resulted from full payoffs and partial paydowns of certain larger relationships aggregating approximately $103 million. The payoffs stemmed from customers selling businesses and assets and refinancing debt with U.S. government agencies. Several borrowers also made unscheduled principal reductions and line of credit paydowns using excess cash flows generated within their operations.

As of December 31, 2022, unfunded commitments on commercial construction and development loans, which are expected to be funded over the next 12 to 18 months, and residential construction loans, which are anticipated to be largely funded over the next 12 months, totaled $197 million and $72.5 million, respectively.

Interest-earning deposits decreased $881 million during 2022 as excess overnight funds were used to fund loan growth, brokered deposit and Federal Home Loan Bank of Indianapolis advance maturities, and securities purchases. In addition, a customer's withdrawal of a majority of funds that were deposited in late 2021 following the sale of a business, as well as other fund withdrawals by customers to make customary tax and bonus payments, contributed to the lower level of interest-earning deposits.

Ray Reitsma, President of Mercantile Bank, noted, "We are very pleased with the robust levels of commercial loan and residential mortgage loan growth during 2022, which were attained with an ongoing emphasis on prudent underwriting standards and risk-based pricing. The expansion of our commercial loan portfolio during the year was achieved despite payoffs of several larger relationships totaling nearly $222 million, reflecting clients' sales of businesses and assets and refinancing debt with U.S. government agencies, with approximately $31 million of the payoffs being related to customers who were experiencing financial strains. Growth in commercial and industrial loans during the year provided members of our sales team with further opportunities to obtain local deposits and augment commercial banking-associated fee income through the marketing of treasury management products. We continue to be satisfied with the level of residential mortgage loan production, particularly when taking into consideration the impact of rising interest rates on the housing market and refinance activity. Based on our commercial loan pipeline and line availability on construction loans, we believe future loan funding levels will remain solid."

Commercial and industrial loans and owner-occupied commercial real estate loans together represented approximately 58 percent of total commercial loans as of December 31, 2022, a level that has remained relatively consistent with prior periods and in line with our expectations.

Total deposits as of December 31, 2022, were $3.71 billion, down $370 million, or 9.1 percent, from December 31, 2021. Local deposits and brokered deposits decreased $346 million and $23.9 million, respectively, during 2022. The decline in local deposits primarily reflected the previously mentioned customer withdrawal of funds and customers' routine tax and bonus payment levels. Wholesale funds were $308 million, or approximately 7 percent of total funds, at December 31, 2022, compared to $398 million, or approximately 9 percent of total funds, at December 31, 2021.

Asset Quality

Nonperforming assets totaled $7.7 million, or 0.2 percent of total assets, at December 31, 2022, compared to $1.4 million, or less than 0.1 percent of total assets, at September 30, 2022, and $2.5 million, or 0.1 percent of total assets, at December 31, 2021. The increase in nonperforming assets during the fourth quarter of 2022 substantially reflected the placing of one large commercial loan relationship, which was designated as a troubled debt restructuring in the second quarter of 2022, on nonaccrual during the quarter; this relationship accounted for approximately 73 percent of total nonperforming assets as of December 31, 2022.

During the fourth quarter of 2022, loan charge-offs totaled $0.1 million while recoveries of prior period loan charge-offs equaled $0.2 million, providing for net loan recoveries of $0.1 million, or an annualized 0.01 percent of average total loans. During the full-year 2022, loan charge-offs totaled $0.3 million while recoveries of prior period loan charge-offs equaled $1.0 million, providing for net loan recoveries of $0.7 million, or 0.02 percent of average total loans.

Mr. Reitsma commented, "We are very pleased that our asset quality metrics have remained strong amid the ongoing uncertain economic environment, which is a testament to our steadfast focus on proper underwriting and borrowers' ability to effectively navigate through the myriad of operating challenges, including high levels of inflation, adverse labor market conditions, and continuing supply chain issues. The increase in nonperforming assets during the fourth quarter primarily resulted from the deterioration of one commercial loan relationship, which we believe is sufficiently reserved for in the allowance for credit losses, and is not reflective of a systemic decline in credit quality. We continue to experience low levels of nonperforming assets, past due loans, and loan charge-offs, and we did not possess any parcels of other real estate throughout 2022."

Capital Position

Shareholders' equity totaled $441 million as of December 31, 2022, down from $457 million at year-end 2021 mainly due to a $61.6 million increase in the after-tax net unrealized holding loss on securities available for sale resulting from higher market interest rates. Mercantile Bank's capital position remains "well-capitalized" with a total risk-based capital ratio of 13.7 percent as of December 31, 2022, compared to 13.6 percent at December 31, 2021. At December 31, 2022, Mercantile Bank had approximately $166 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a "well-capitalized" institution. Mercantile reported 15,994,884 total shares outstanding at December 31, 2022.

Mr. Kaminski concluded, "Our sustained strong financial condition during 2022 enabled us to continue our regular quarterly cash dividend program and reward shareholders with meaningful cash returns. We were pleased to announce earlier today that our Board of Directors declared an increased first quarter 2023 regular cash dividend. Our commitment to functioning as a steady and profitable company is unwavering, and we believe our solid capital levels, asset quality metrics, and operating results have positioned us well to effectively meet any future challenges. We remain focused on growing our loan portfolio in a cautious and disciplined manner and will not relax underwriting standards to gain market share."

Investor Presentation

Mercantile has prepared presentation materials that management intends to use during its previously announced fourth quarter 2022 conference call on Tuesday, January 17, 2023, at 10:00 a.m. Eastern Time, and from time to time thereafter in presentations about the Company's operations and performance. 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. 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 $4.9 billion and operates 46 banking offices. Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "MBWM." For more information about Mercantile, visit www.mercbank.com, and follow us on Facebook, Instagram and Twitter @MercBank and on LinkedIn at www.linkedin.com/company/merc-bank.

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; climate impacts; labor markets; 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 disruptions to supply chain and financial markets caused by the COVID-19 pandemic and unstable political and economic environments; 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 2022 Results







MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)










DECEMBER 31,


DECEMBER 31,


DECEMBER 31,



2022


2021


2020

ASSETS







Cash and due from banks

$

61,894,000

$

59,405,000

$

62,832,000

Interest-earning deposits


34,878,000


915,755,000


563,174,000

Total cash and cash equivalents


96,772,000


975,160,000


626,006,000








Securities available for sale


602,936,000


592,743,000


387,347,000

Federal Home Loan Bank stock


17,721,000


18,002,000


18,002,000

Mortgage loans held for sale


3,565,000


16,117,000


22,888,000








Loans


3,916,619,000


3,453,459,000


3,193,470,000

Allowance for credit losses


(42,246,000)


(35,363,000)


(37,967,000)

Loans, net


3,874,373,000


3,418,096,000


3,155,503,000








Premises and equipment, net


51,476,000


57,298,000


58,959,000

Bank owned life insurance


80,727,000


75,242,000


72,131,000

Goodwill


49,473,000


49,473,000


49,473,000

Core deposit intangible, net


583,000


1,351,000


2,436,000

Other assets


94,993,000


54,267,000


44,599,000








Total assets

$

4,872,619,000

$

5,257,749,000

$

4,437,344,000















LIABILITIES AND SHAREHOLDERS' EQUITY







Deposits:







Noninterest-bearing

$

1,604,750,000

$

1,677,952,000

$

1,433,403,000

Interest-bearing


2,108,061,000


2,405,241,000


1,978,150,000

Total deposits


3,712,811,000


4,083,193,000


3,411,553,000








Securities sold under agreements to repurchase


194,340,000


197,463,000


118,365,000

Federal Home Loan Bank advances


308,263,000


374,000,000


394,000,000

Subordinated debentures


48,958,000


48,244,000


47,563,000

Subordinated notes


88,628,000


73,646,000


0

Accrued interest and other liabilities


78,211,000


24,644,000


24,309,000

Total liabilities


4,431,211,000


4,801,190,000


3,995,790,000








SHAREHOLDERS' EQUITY







Common stock


290,436,000


285,752,000


302,029,000

Retained earnings


216,313,000


174,536,000


134,039,000

Accumulated other comprehensive income/(loss)


(65,341,000)


(3,729,000)


5,486,000

Total shareholders' equity


441,408,000


456,559,000


441,554,000








Total liabilities and shareholders' equity

$

4,872,619,000

$

5,257,749,000

$

4,437,344,000

Mercantile Bank Corporation













Fourth Quarter 2022 Results













MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)















THREE MONTHS ENDED

THREE MONTHS ENDED

TWELVE MONTHS ENDED

TWELVE MONTHS ENDED


December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

INTEREST INCOME













Loans, including fees

$

53,787,000


$

34,617,000


$

166,848,000


$

135,048,000


Investment securities


2,841,000



2,139,000



10,337,000



7,513,000


Other interest-earning assets


1,650,000



290,000



4,654,000



933,000


Total interest income


58,278,000



37,046,000



181,839,000



143,494,000















INTEREST EXPENSE













Deposits


4,040,000



1,867,000



10,037,000



9,114,000


Short-term borrowings


141,000



47,000



294,000



170,000


Federal Home Loan Bank advances


1,595,000



2,028,000



7,125,000



8,177,000


Other borrowed money


1,845,000



570,000



6,139,000



1,971,000


Total interest expense


7,621,000



4,512,000



23,595,000



19,432,000















Net interest income


50,657,000



32,534,000



158,244,000



124,062,000















Provision for credit losses


3,050,000



(3,400,000)



6,550,000



(4,300,000)















Net interest income after













provision for credit losses


47,607,000



35,934,000



151,694,000



128,362,000















NONINTEREST INCOME













Service charges on accounts


1,463,000



1,391,000



5,952,000



5,078,000


Mortgage banking income


1,673,000



6,910,000



8,664,000



29,959,000


Credit and debit card income


2,115,000



1,972,000



8,216,000



7,516,000


Interest rate swap income


1,141,000



776,000



3,488,000



6,862,000


Payroll services


543,000



442,000



2,178,000



1,815,000


Earnings on bank owned life insurance


368,000



292,000



1,678,000



1,164,000


Gain on sale of branch


0



0



0



1,058,000


Other income


502,000



849,000



1,901,000



2,768,000


Total noninterest income


7,805,000



12,632,000



32,077,000



56,220,000















NONINTEREST EXPENSE













Salaries and benefits


17,282,000



19,193,000



65,124,000



66,447,000


Occupancy


2,194,000



2,067,000



8,362,000



8,088,000


Furniture and equipment


792,000



934,000



3,614,000



3,654,000


Data processing costs


3,156,000



2,966,000



12,359,000



11,104,000


Charitable foundation contributions


1,005,000



4,020,000



1,514,000



4,020,000


Other expense


4,112,000



4,167,000



17,008,000



17,553,000


Total noninterest expense


28,541,000



33,347,000



107,981,000



110,866,000















Income before federal income













tax expense


26,871,000



15,219,000



75,790,000



73,716,000















Federal income tax expense


5,068,000



3,580,000



14,727,000



14,695,000















Net Income

$

21,803,000


$

11,639,000


$

61,063,000


$

59,021,000















Basic earnings per share


$1.37



$0.74



$3.85



$3.69


Diluted earnings per share


$1.37



$0.74



$3.85



$3.69















Average basic shares outstanding


15,887,983



15,696,204



15,859,889



15,986,857


Average diluted shares outstanding


15,887,983



15,696,451



15,859,901



15,987,303


Mercantile Bank Corporation
















Fourth Quarter 2022 Results
















MERCANTILE BANK CORPORATION


CONSOLIDATED FINANCIAL HIGHLIGHTS


(Unaudited)




















Quarterly


Year-To-Date


(dollars in thousands except per share data)

2022


2022


2022


2022


2021








4th Qtr


3rd Qtr


2nd Qtr


1st Qtr


4th Qtr


2022


2021


EARNINGS
















Net interest income

$

50,657


42,376


34,326


30,885


32,534


158,244


124,062


Provision for credit losses

$

3,050


2,900


500


100


(3,400)


6,550


(4,300)


Noninterest income

$

7,805


7,253


7,741


9,277


12,632


32,077


56,220


Noninterest expense

$

28,541


26,756


26,942


25,742


33,347


107,981


110,866


Net income before federal income
















tax expense

$

26,871


19,973


14,625


14,320


15,219


75,790


73,716


Net income

$

21,803


16,030


11,737


11,492


11,639


61,063


59,021


Basic earnings per share

$

1.37


1.01


0.74


0.73


0.74


3.85


3.69


Diluted earnings per share

$

1.37


1.01


0.74


0.73


0.74


3.85


3.69


Average basic shares outstanding


15,887,983


15,861,551


15,848,681


15,840,801


15,696,204


15,859,889


15,986,857


Average diluted shares outstanding


15,887,983


15,861,551


15,848,681


15,841,037


15,696,451


15,859,901


15,987,303


















PERFORMANCE RATIOS
















Return on average assets


1.75 %


1.27 %


0.93 %


0.90 %


0.92 %


1.21 %


1.23 %


Return on average equity


20.26 %


14.79 %


10.98 %


10.36 %


10.15 %


14.07 %


13.11 %


Net interest margin (fully tax-equivalent)


4.30 %


3.56 %


2.88 %


2.57 %


2.74 %


3.32 %


2.76 %


Efficiency ratio


48.82 %


53.91 %


64.05 %


64.10 %


73.83 %


56.74 %


61.50 %


Full-time equivalent employees


630


635


651


630


627


630


627


















YIELD ON ASSETS / COST OF FUNDS
















Yield on loans


5.49 %


4.56 %


3.97 %


3.87 %


4.07 %


4.50 %


4.06 %


Yield on securities


1.91 %


1.79 %


1.68 %


1.52 %


1.46 %


1.72 %


1.51 %


Yield on other interest-earning assets


3.60 %


2.15 %


0.76 %


0.19 %


0.15 %


1.05 %


0.14 %


Yield on total earning assets


4.95 %


4.04 %


3.32 %


2.99 %


3.12 %


3.82 %


3.19 %


Yield on total assets


4.68 %


3.80 %


3.13 %


2.82 %


2.94 %


3.60 %


2.99 %


Cost of deposits


0.42 %


0.24 %


0.19 %


0.19 %


0.19 %


0.26 %


0.24 %


Cost of borrowed funds


2.13 %


1.99 %


1.90 %


1.82 %


1.66 %


1.96 %


1.71 %


Cost of interest-bearing liabilities


1.10 %


0.81 %


0.72 %


0.66 %


0.63 %


0.82 %


0.72 %


Cost of funds (total earning assets)


0.65 %


0.48 %


0.44 %


0.42 %


0.38 %


0.50 %


0.43 %


Cost of funds (total assets)


0.61 %


0.45 %


0.41 %


0.39 %


0.36 %


0.47 %


0.40 %


















MORTGAGE BANKING ACTIVITY
















Total mortgage loans originated

$

90,794


163,902


190,896


168,187


210,228


613,779


952,239


Purchase mortgage loans originated

$

79,604


140,898


157,423


101,409


124,557


479,334


494,197


Refinance mortgage loans originated

$

11,190


23,004


33,473


66,778


85,671


134,445


458,042


Total saleable mortgage loans

$

29,948


59,740


52,328


75,747


129,546


217,763


643,535


Income on sale of mortgage loans

$

1,401


1,779


1,751


3,204


6,850


8,135


30,381


















CAPITAL
















Tangible equity to tangible assets


8.12 %


7.37 %


7.56 %


7.53 %


7.79 %


8.12 %


7.79 %


Tier 1 leverage capital ratio


10.09 %


9.63 %


9.31 %


9.04 %


9.19 %


10.09 %


9.19 %


Common equity risk-based capital ratio


10.08 %


9.80 %


9.84 %


10.02 %


10.12 %


10.08 %


10.12 %


Tier 1 risk-based capital ratio


11.12 %


10.84 %


10.91 %


11.13 %


11.26 %


11.12 %


11.26 %


Total risk-based capital ratio


14.00 %


13.69 %


13.78 %


14.09 %


13.95 %


14.00 %


13.95 %


Tier 1 capital

$

503,855


485,499


473,065


464,396


456,133


503,855


456,133


Tier 1 plus tier 2 capital

$

634,729


613,161


597,495


587,976


565,143


634,729


565,143


Total risk-weighted assets

$

4,533,091


4,479,176


4,337,040


4,173,590


4,051,253


4,533,091


4,051,253


Book value per common share

$

27.60


26.24


27.05


27.55


28.82


27.60


28.82


Tangible book value per common share

$

24.47


23.07


23.87


24.36


25.61


24.47


25.61


Cash dividend per common share

$

0.32


0.32


0.31


0.31


0.30


1.26


1.18


















ASSET QUALITY
















Gross loan charge-offs

$

72


0


15


205


179


292


1,044


Recoveries

$

149


246


336


294


1,519


1,025


2,740


Net loan charge-offs (recoveries)

$

(77)


(246)


(321)


(89)


(1,340)


(733)


(1,696)


Net loan charge-offs to average loans


(0.01 %)


(0.03 %)


(0.04 %)


(0.01 %)


(0.16 %)


(0.02 %)


(0.05 %)


Allowance for credit losses

$

42,246


39,120


35,974


35,153


35,363


42,246


35,363


Allowance to loans


1.08 %


1.01 %


0.97 %


0.99 %


1.02 %


1.08 %


1.02 %


Nonperforming loans

$

7,728


1,416


1,787


1,612


2,468


7,728


2,468


Other real estate/repossessed assets

$

0


0


0


0


0


0


0


Nonperforming loans to total loans


0.20 %


0.04 %


0.05 %


0.05 %


0.07 %


0.20 %


0.07 %


Nonperforming assets to total assets


0.16 %


0.03 %


0.04 %


0.03 %


0.05 %


0.16 %


0.05 %


















NONPERFORMING ASSETS - COMPOSITION














Residential real estate:
















Land development

$

29


30


30


31


32


29


32


Construction

$

124


0


0


0


0


124


0


Owner occupied / rental

$

1,304


1,138


1,508


1,579


1,768


1,304


1,768


Commercial real estate:
















Land development

$

0


0


0


0


0


0


0


Construction

$

0


0


0


0


0


0


0


Owner occupied

$

248


0


0


0


0


248


0


Non-owner occupied

$

0


0


0


0


0


0


0


Non-real estate:
















Commercial assets

$

6,023


248


248


0


662


6,023


662


Consumer assets

$

0


0


1


2


6


0


6


Total nonperforming assets


7,728


1,416


1,787


1,612


2,468


7,728


2,468


















NONPERFORMING ASSETS - RECON
















Beginning balance

$

1,416


1,787


1,612


2,468


2,877


2,468


4,085


Additions

$

6,368


0


309


93


218


6,770


1,217


Return to performing status

$

0


(160)


0


(213)


0


(373)


(165)


Principal payments

$

(56)


(211)


(134)


(641)


(377)


(1,042)


(1,711)


Sale proceeds

$

0


0


0


0


(111)


0


(397)


Loan charge-offs

$

0


0


0


(95)


(139)


(95)


(227)


Valuation write-downs

$

0


0


0


0


0


0


(334)


Ending balance

$

7,728


1,416


1,787


1,612


2,468


7,728


2,468


















LOAN PORTFOLIO COMPOSITION
















Commercial:
















Commercial & industrial

$

1,185,083


1,213,630


1,187,650


1,153,814


1,137,419


1,185,083


1,137,419


Land development & construction

$

61,873


60,970


57,808


52,693


43,240


61,873


43,240


Owner occupied comm'l R/E

$

639,192


643,577


598,593


582,732


565,758


639,192


565,758


Non-owner occupied comm'l R/E

$

1,033,735


1,002,638


1,003,118


1,007,361


1,027,415


1,033,735


1,027,415


Multi-family & residential rental

$

211,948


224,247


224,591


207,962


176,593


211,948


176,593


Total commercial

$

3,131,831


3,145,062


3,071,760


3,004,562


2,950,425


3,131,831


2,950,425


Retail:
















1-4 family mortgages & home equity

$

755,035


705,442


623,599


522,556


442,546


755,035


442,546


Other consumer

$

29,753


30,454


28,441


28,672


60,488


29,753


60,488


Total retail

$

784,788


735,896


652,040


551,228


503,034


784,788


503,034


Total loans

$

3,916,619


3,880,958


3,723,800


3,555,790


3,453,459


3,916,619


3,453,459


















END OF PERIOD BALANCES
















Loans

$

3,916,619


3,880,958


3,723,800


3,555,790


3,453,459


3,916,619


3,453,459


Securities

$

620,657


600,720


621,359


623,382


610,745


620,657


610,745


Other interest-earning assets

$

34,878


220,909


389,938


698,724


915,755


34,878


915,755


Total earning assets (before allowance)

$

4,572,154


4,702,587


4,735,097


4,877,896


4,979,959


4,572,154


4,979,959


Total assets

$

4,872,619


5,016,934


5,058,555


5,175,899


5,257,749


4,872,619


5,257,749


Noninterest-bearing deposits

$

1,604,750


1,716,904


1,740,432


1,686,203


1,677,952


1,604,750


1,677,952


Interest-bearing deposits

$

2,108,061


2,129,181


2,133,461


2,290,048


2,405,241


2,108,061


2,405,241


Total deposits

$

3,712,811


3,846,085


3,873,893


3,976,251


4,083,193


3,712,811


4,083,193


Total borrowed funds

$

641,295


675,332


703,809


724,578


694,588


641,295


694,588


Total interest-bearing liabilities

$

2,749,356


2,804,513


2,837,270


3,014,626


3,099,829


2,749,356


3,099,829


Shareholders' equity

$

441,408


416,261


428,983


436,471


456,559


441,408


456,559


















AVERAGE BALANCES
















Loans

$

3,887,967


3,814,338


3,633,587


3,484,511


3,373,551


3,706,505


3,324,612


Securities

$

606,390


618,043


615,733


613,317


600,852


613,365


513,468


Other interest-earning assets

$

179,507


294,969


530,571


784,193


738,328


445,236


671,351


Total earning assets (before allowance)

$

4,673,864


4,727,350


4,779,891


4,882,021


4,712,731


4,765,106


4,509,431


Total assets

$

4,949,868


5,025,998


5,077,458


5,168,562


5,010,786


5,054,792


4,801,134


Noninterest-bearing deposits

$

1,722,632


1,723,609


1,706,349


1,625,453


1,708,052


1,694,857


1,620,480


Interest-bearing deposits

$

2,077,547


2,144,047


2,201,797


2,364,437


2,194,644


2,196,026


2,106,070


Total deposits

$

3,800,179


3,867,656


3,908,146


3,989,890


3,902,696


3,890,883


3,726,550


Total borrowed funds

$

667,864


689,091


705,774


707,478


632,036


692,434


604,414


Total interest-bearing liabilities

$

2,745,411


2,833,138


2,907,571


3,071,915


2,826,680


2,888,460


2,710,484


Shareholders' equity

$

426,897


430,093


428,873


449,863


455,084


433,858


450,171


Cision View original content:https://www.prnewswire.com/news-releases/mercantile-bank-corporation-announces-strong-fourth-quarter-and-full-year-2022-results-301722924.html

SOURCE Mercantile Bank Corporation



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