Published in Finance

Mercantile Bank in ‘extremely solid’ position to weather economic turbulence

BY Wednesday, April 22, 2020 08:25am

GRAND RAPIDS — Mercantile Bank Corp. reported lower earnings to start 2020 and sits in an “extremely solid” condition for the economic downturn brought on by the COVID-19 pandemic.

The Grand Rapids-based Mercantile Bank (Nasdaq: MBWM) reported net income of $10.6 million for the first quarter, or 65 cents per diluted share. That compares with net income of $11.8 million, or 72 cents per share, for the first three months of 2019, when a bank-owned life insurance claim and a gain on the sale of a former branch increased earnings by $1.8 million, or 11 cents per diluted share.

President and CEO Robert Kaminski COURTESY PHOTO

Minus the one-time events, diluted earnings per share grew by 4 cents.

“Mercantile has worked continuously since the end of the Great Recession to place ourselves in a position of strength. The goal is to leverage the opportunities of a solid economy, but to also provide our company with strong financial metrics that allow us to be successful during weaker economic times,” President and CEO Robert Kaminski said Tuesday in a conference call with brokerage analysts to discuss quarterly results. “While the pandemic certainly creates new challenges for everyone in the financial services industry, our foundation remains extremely solid as we work with our clients to help them weather the storm caused by this crisis.”

The COVID-19 pandemic and resulting state stay-at-home order in mid March had a “substantial impact” on home purchases and mortgages, as well as on debit and credit card fee income, said CFO Chuck Christmas.

In March, the bank did not see a major spike in businesses accessing their operating lines of credit, although the U.S. Small Business Administration’s Paycheck Protection Program “certainly helped their cash flow situation,” Christmas said.

In the two weeks before the SBA ran out of funding for the PPP, Mercantile Bank processed and secured approval for 1,549 loans for small business clients totaling $502.9 million. More PPP loan applications are waiting to go forward once Congress allocates more funding for the program, Christmas said.

Under an agreement reached Tuesday in Washington, D.C., Congress was poised to allocate another $310 billion for the Paycheck Protection Program, $60 billion of which “is dedicated to small lenders and community-based financial institutions to serve the needs of unbanked and underserved small businesses and nonprofits, including in rural communities,” according to U.S. Sen. Gary Peters, D-Michigan.

Mercantile, like many other banks, has adjusted loan terms and provided payment deferrals for retail, residential and commercial borrowers.

Given the uncertainty and the economic effects of the pandemic, Mercantile executives could not provide guidance for future earnings.

“While there are many uncertainties that may impact Mercantile’s financial condition and earnings performance in future periods, we note that we entered the stressed environment with strong asset quality and capital position,” Christmas said. “There’s no doubt that it’s a stressed environment. Companies and individuals are going to suffer. We’re going to see an increase in past dues and non-accrual and likely some charge-offs. But the degree of which is just anybody’s guess. We can sit around and do scenarios all day long, but it’s not going to matter.”

Mercantile Bank has 40 offices across the Lower Peninsula and ended the quarter with $3.65 billion in total assets. 

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