Mercantile Bank Corporation Announces Robust Third Quarter 2022 Results

About this update from Mercantile Bank Corporation

Significant increase in net interest income, solid loan growth, and ongoing strength in asset quality metrics highlight quarter GRAND RAPIDS, Mich. , Oct. 18, 2022 /PRNewswire/ -- Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $16.0 million , or $1.01 per diluted share, for the third quarter of 2022, compared with net income of $15 .1 million, or $0.95 per diluted share, for the respective prior-year period. Net income during the first nine months of 2022 totaled $39.3 million , or $2.48 per diluted share, compared to $47.4 million , or $2.95 per diluted share, during the first nine months of 2021. "We are very pleased with our third quarter operating results," said Robert B. Kaminski , Jr., President and Chief Executive Officer of Mercantile. "Substantial growth in net interest income, primarily reflecting an improved net interest margin, continued loan growth, increases in certain key fee income categories and a manageable overhead cost structure, have more than offset a significantly reduced level of mortgage banking income stemming from unfavorable market conditions. Our continuing efforts to meet the credit needs of existing clients and attract new loan relationships, while adhering to our underwriting standards, have been successful as evidenced by the significant growth in commercial loans and residential mortgage loans and persistent strength in asset quality metrics. We take pride in our role as a trusted consultant and assisting our customers in dealing with the challenges posed by the current economic environment and associated operating conditions, including elevated inflation levels, supply chain disruptions, increasing interest rates, and staffing issues." Third quarter highlights include: Significant increase in net interest income reflecting net interest margin expansion and loan growth Notable increases in several key fee income categories Substantial commercial loan and residential mortgage loan growth Sustained strength in commercial loan pipeline Ongoing low level of nonperforming assets, no loan charge-offs, and no loans placed on nonaccrual status Strong capital position Operating Results Total revenue, which consists of net interest income and noninterest income, was $49.6 million during the third quarter of 2022, compared to $46.7 million during the prior-year third quarter. Net interest income during the current-year third quarter was $42.4 million , up $11.3 million , or approximately 36 percent, from $31.1 million during the respective 2021 period, reflecting continued earning asset growth and net interest margin expansion. Noninterest income totaled $7.3 million during the third quarter of 2022, down from $15.6 million during the third quarter of 2021 mainly due to decreased mortgage banking income and interest rate swap income, which more than offset noteworthy increases in several key fee income categories. The net interest margin was 3.56 percent in the third quarter of 2022, up from 2.88 percent in the second quarter of 2022 and 2.71 percent in the prior-year third quarter. The yield on average earning assets was 4.04 percent during the current-year third quarter, up from 3.32 percent during the second quarter of 2022 and 3.13 percent during the third 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, and an increased yield on other interest-earning assets. The yield on loans was 4.56 percent during the third quarter of 2022, up from 3.97 percent during the second quarter of 2022 and 4.07 percent during the prior-year third 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 300 basis points during the period of March 2022 through September 2022 . The increase in loan yield during the third quarter of 2022 compared to the respective 2021 period was achieved despite a significant reduction in Paycheck Protection Program net loan fee accretion. As of September 30, 2022 , approximately 64 percent of the commercial loan portfolio consisted of variable-rate loans. The cost of funds was 0.48 percent in the third quarter of 2022, up from 0.42 percent in the prior-year third quarter primarily due to higher costs of trust preferred securities and deposits, reflecting the impact of the rising interest rate environment, and the issuance of $90.0 million in subordinated notes in December of 2021 and January of 2022. Subordinated note issuance proceeds of $85.0 million were injected into Mercantile Bank as an increase to equity capital to support anticipated loan growth. The cost of funds during the current-year third quarter increased slightly from the second quarter of 2022. The persistence of 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, negatively impacted the yield on average earning assets by 10 basis points and 51 basis points during the third quarters of 2022 and 2021, respectively, and the net interest margin by 7 basis points and 44 basis points during the respective periods. The excess funds, consisting almost entirely of low-yielding deposits with the Federal Reserve Bank of Chicago , are mainly a product of local deposit growth and Paycheck Protection Program loan forgiveness activities. Mercantile recorded a provision for credit losses of $2.9 million during the third quarter of 2022, compared to a provision expense of $1.9 million during the third quarter of 2021. The provision expense recorded during the current-year third quarter mainly reflected allocations necessitated by commercial loan and residential mortgage loan growth, an increased specific reserve for a distressed commercial loan relationship, and a decline in forecasted economic conditions. The provision expense recorded during the prior-year third quarter primarily reflected allocations associated with commercial 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 third quarter of 2022 was $7.3 million , compared to $15.6 million during the respective 2021 period. The lower level of noninterest income almost entirely stemmed from decreased mortgage banking income and interest rate swap income, which more than offset growth in several key fee income revenue streams, including service charges on accounts, credit and debit card income, and payroll servicing fees. Ongoing strength in purchase residential mortgage loan originations during the third quarter of 2022 partially mitigated the negative impacts of higher interest rates, lower refinance activity, a reduced sold percentage, and a decreased gain on sale rate on mortgage banking income during the period when compared to the prior-year third quarter. The residential mortgage loan sold percentage declined from approximately 69 percent during the third quarter of 2021 to about 36 percent during the current-year third quarter, 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 $26.8 million during the third quarter of 2022, compared to $26.2 million during the prior-year third quarter. The slight growth in noninterest expense mainly resulted from increased salary costs, reflecting a larger bonus accrual and annual employee merit pay increases, which more than offset higher residential mortgage loan deferred salary costs as well as decreased residential mortgage lender commissions and associated incentives. Mr. Kaminski commented, "Our net interest income increased substantially during the third quarter and first nine months of 2022 as a result of net interest margin expansion and loan growth, and we believe our balance sheet structure will provide for additional growth in net interest income in future periods as the FOMC is expected to continue to raise interest rates in an effort to curb inflation. We are pleased that the increase in net interest income, coupled with loan growth and increases in several key fee income categories, have outweighed the significant reduction in mortgage banking income resulting from various headwinds, including higher residential mortgage loan interest rates and the associated lower level of refinance activity. We remain focused on growing in a disciplined manner and are continually examining our operating costs to help identify further opportunities to augment efficiency." Balance Sheet As of September 30, 2022 , total assets were $5.02 billion , down $241 million from December 31, 2021 . Total loans increased $427 million during the first nine months of 2022, reflecting growth in core commercial loans of $232 million and residential mortgage loans of $233 million , which more than offset a reduction in Paycheck Protection Program loans of $37.5 million . Core commercial loans and residential mortgage loans grew $73.6 million and $81.8 million , respectively, during the third quarter of 2022. The increases in core commercial loans during the third quarter and first nine months of 2022 equated to annualized growth rates of nearly 10 percent and 11 percent, respectively. As of September 30, 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 $169 million and $84.0 million , respectively. Interest-earning deposits decreased $695 million during the first nine months of 2022 as excess overnight funds were used to fund loan growth and wholesale fund maturities, as well as 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 routine tax payments, contributed to the reduced level of interest-earning deposits. Ray Reitsma , President of Mercantile Bank , noted, "Our ongoing efforts to expand the loan portfolio were once again successful and provided for solid growth in commercial loans and residential mortgage loans during the third quarter of 2022. The growth in commercial loans during the third quarter and first nine months of 2022 occurred in spite of payoffs of certain larger relationships aggregating approximately $34 million and $158 million during the respective timeframes. The payoffs stemmed from customers' sales of businesses and assets and the refinancing of debt with U.S. government agencies, with about $27 million of the payoffs during the year-to-date period being related to customers that were enduring financial difficulties. Increases in commercial and industrial loans represented approximately one-third and one-half of the growth in commercial loans during the third quarter and first nine months of the current year, respectively, affording our sales team additional opportunities to market treasury management products and enhance commercial banking-related income. We are pleased with the level of residential mortgage loan production, especially when considering the ongoing headwinds that have limited market opportunities. We believe the continuing strength of our commercial loan pipeline and solid levels of credit availability on commercial construction and development loans and residential mortgage construction loans provide momentum as we conclude 2022 and head into 2023." Commercial and industrial loans and owner-occupied commercial real estate loans together represented approximately 59 percent of total commercial loans as of September 30, 2022 , a level that has remained relatively consistent with prior periods and in line with our expectations. Total deposits at September 30, 2022 , were $3.85 billion , down $237 million , or 5.8 percent, from December 31, 2021 . Local deposits and brokered deposits decreased $213 million and $23.9 million , respectively, during the first nine months of 2022. The decline in local deposits primarily reflected the previously mentioned customer withdrawal of funds and customers' normal tax payment levels. Wholesale funds were $338 million , or approximately 8 percent of total funds, at September 30, 2022 , compared to $398 million , or approximately 9 percent of total funds, at December 31, 2021 . Asset Quality Nonperforming assets totaled $1.4 million , $2.5 million , and $2.9 million at September 30, 2022 , December 31, 2021 , and September 30, 2021 , respectively, with each dollar amount representing less than 0.1 percent of total assets as of the respective dates. The level of past due loans remains nominal. During the third quarter of 2022, no loan charge-offs were recorded, while recoveries of prior period loan charge-offs were $0.2 million , providing for net loan recoveries of $0.2 million , or an annualized 0.03 percent of average total loans. Mr. Reitsma commented, "Our unwavering focus on sound loan underwriting has enabled us to once again report strong asset quality metrics. As our borrowers continue to operate in an economic environment full of challenges, including elevated levels of inflation, unfavorable labor market conditions, and ongoing supply chain issues, we remain committed to diligently monitoring our loan portfolio for any signals of deterioration and quickly implementing corrective measures to alleviate the impact of any identified credit weakness on our overall financial condition." Capital Position Shareholders' equity totaled $416 million as of September 30, 2022 , down from $457 million at year-end 2021 mainly due to a $68.7 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 13.4 percent as of September 30, 2022 , compared to 13.6 percent at December 31, 2021 . At September 30, 2022 , Mercantile Bank had approximately $150 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a "well-capitalized" institution. Mercantile reported 15,866,243 total shares outstanding at September 30, 2022 . Mr. Kaminski concluded, "Our sustained financial strength has allowed us to continue our regular cash dividend program and provide shareholders with competitive returns on their investments while supporting the ongoing growth in our loan portfolio. In light of our strong overall financial condition, including solid capital levels, outstanding asset quality metrics, robust operating performance, including the possibility of augmenting net interest income from probable further FOMC rate hikes, and considerable loan origination opportunities, we believe we are well positioned to withstand the negative impacts associated with a likely weakened economic environment. We remain focused on being a consistent and profitable performer." Investor Presentation Mercantile has prepared presentation materials that management intends to use during its previously announced third quarter 2022 conference call on Tuesday, October 18, 2022 , 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 $5.0 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; 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 markets and other economic activity 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 [email protected] [email protected] Mercantile Bank Corporation Third Quarter 2022 Results MERCANTILE BANK CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) SEPTEMBER 30 , DECEMBER 31 , SEPTEMBER 30 , 2022 2021 2021 ASSETS Cash and due from banks $ 63,105,000 $ 59,405,000 $ 83,804,000 Interest-earning deposits 220,909,000 915,755,000 741,557,000 Total cash and cash equivalents 284,014,000 975,160,000 825,361,000 Securities available for sale 582,999,000 592,743,000 559,564,000 Federal Home Loan Bank stock 17,721,000 18,002,000 18,002,000 Mortgage loans held for sale 14,411,000 16,117,000 47,247,000 Loans 3,880,958,000 3,453,459,000 3,313,709,000 Allowance for credit losses (39,120,000) (35,363,000) (37,423,000) Loans, net 3,841,838,000 3,418,096,000 3,276,286,000 Premises and equipment, net 52,117,000 57,298,000 57,465,000 Bank owned life insurance 75,880,000 75,242,000 72,963,000 Goodwill 49,473,000 49,473,000 49,473,000 Core deposit intangible, net 741,000 1,351,000 1,589,000 Other assets 97,740,000 54,267,000 56,462,000 Total assets $ 5,016,934,000 $ 5,257,749,000 $ 4,964,412,000 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $ 1,716,904,000 $ 1,677,952,000 $ 1,647,380,000 Interest-bearing 2,129,181,000 2,405,241,000 2,221,611,000 Total deposits 3,846,085,000 4,083,193,000 3,868,991,000 Securities sold under agreements to repurchase 198,605,000 197,463,000 175,850,000 Federal Home Loan Bank advances 338,263,000 374,000,000 394,000,000 Subordinated debentures 48,787,000 48,244,000 48,074,000 Subordinated notes 88,542,000 73,646,000 0 Accrued interest and other liabilities 80,391,000 24,644,000 25,219,000 Total liabilities 4,600,673,000 4,801,190,000 4,512,134,000 SHAREHOLDERS' EQUITY Common stock 289,219,000 285,752,000 285,033,000 Retained earnings 199,505,000 174,536,000 167,541,000 Accumulated other comprehensive income/(loss) (72,463,000) (3,729,000) (296,000) Total shareholders' equity 416,261,000 456,559,000 452,278,000 Total liabilities and shareholders' equity $ 5,016,934,000 $ 5,257,749,000 $ 4,964,412,000 Mercantile Bank Corporation Third Quarter 2022 Results MERCANTILE BANK CORPORATION CONSOLIDATED REPORTS OF INCOME (Unaudited) THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 INTEREST INCOME Loans, including fees $ 43,807,000 $ 33,656,000 $ 113,061,000 $ 100,430,000 Investment securities 2,702,000 1,941,000 7,496,000 5,375,000 Other interest-earning assets 1,620,000 291,000 3,004,000 642,000 Total interest income 48,129,000 35,888,000 123,561,000 106,447,000 INTEREST EXPENSE Deposits 2,299,000 2,184,000 5,997,000 7,247,000 Short-term borrowings 53,000 46,000 153,000 122,000 Federal Home Loan Bank advances 1,755,000 2,072,000 5,530,000 6,149,000 Other borrowed money 1,646,000 462,000 4,294,000 1,401,000 Total interest expense 5,753,000 4,764,000 15,974,000 14,919,000 Net interest income 42,376,000 31,124,000 107,587,000 91,528,000 Provision for credit losses 2,900,000 1,900,000 3,500,000 (900,000) Net interest income after provision for credit losses 39,476,000 29,224,000 104,087,000 92,428,000 NONINTEREST INCOME Service charges on accounts 1,579,000 1,324,000 4,489,000 3,687,000 Credit and debit card income 2,086,000 1,947,000 6,101,000 5,545,000 Mortgage banking income 1,764,000 6,554,000 6,991,000 23,049,000 Interest rate swap income 566,000 3,938,000 2,347,000 6,086,000 Payroll services 533,000 412,000 1,635,000 1,374,000 Earnings on bank owned life insurance 238,000 298,000 1,310,000 872,000 Gain on sale of branch 0 0 0 1,058,000 Other income 487,000 1,095,000 1,399,000 1,916,000 Total noninterest income 7,253,000 15,568,000 24,272,000 43,587,000 NONINTEREST EXPENSE Salaries and benefits 16,656,000 15,975,000 47,842,000 47,255,000 Occupancy 2,001,000 2,030,000 6,168,000 6,021,000 Furniture and equipment 953,000 929,000 2,822,000 2,719,000 Data processing costs 3,139,000 2,746,000 9,203,000 8,138,000 Charitable foundation contribution 4,000 0 509,000 0 Other expense 4,003,000 4,530,000 12,896,000 13,386,000 Total noninterest expense 26,756,000 26,210,000 79,440,000 77,519,000 Income before federal income tax expense 19,973,000 18,582,000 48,919,000 58,496,000 Federal income tax expense 3,943,000 3,531,000 9,659,000 11,114,000 Net Income $ 16,030,000 $ 15,051,000 $ 39,260,000 $ 47,382,000 Basic earnings per share $1.01 $0.95 $2.48 $2.95 Diluted earnings per share $1.01 $0.95 $2.48 $2.95 Average basic shares outstanding 15,861,551 15,859,955 15,850,422 16,084,806 Average diluted shares outstanding 15,861,551 15,860,314 15,850,439 16,085,274 Mercantile Bank Corporation Third Quarter 2022 Results MERCANTILE BANK CORPORATION CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) Quarterly Year-To-Date (dollars in thousands except per share data) 2022 2022 2022 2021 2021 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2022 2021 EARNINGS Net interest income $ 42,376 34,326 30,885 32,534 31,124 107,587 91,528 Provision for loan losses $ 2,900 500 100 (3,400) 1,900 3,500 (900) Noninterest income $ 7,253 7,741 9,277 12,632 15,568 24,272 43,587 Noninterest expense $ 26,756 26,942 25,742 33,347 26,210 79,440 77,519 Net income before federal income tax expense $ 19,973 14,625 14,320 15,219 18,582 48,919 58,496 Net income $ 16,030 11,737 11,492 11,639 15,051 39,260 47,382 Basic earnings per share $ 1.01 0.74 0.73 0.74 0.95 2.48 2.95 Diluted earnings per share $ 1.01 0.74 0.73 0.74 0.95 2.48 2.95 Average basic shares outstanding 15,861,551 15,848,681 15,840,801 15,696,204 15,859,955 15,850,422 16,084,806 Average diluted shares outstanding 15,861,551 15,848,681 15,841,037 15,696,451 15,860,314 15,850,439 16,085,274 PERFORMANCE RATIOS Return on average assets 1.27 % 0.93 % 0.90 % 0.92 % 1.23 % 1.03 % 1.34 % Return on average equity 14.79 % 10.98 % 10.36 % 10.15 % 13.10 % 12.03 % 14.12 % Net interest margin (fully tax-equivalent) 3.56 % 2.88 % 2.57 % 2.74 % 2.71 % 3.00 % 2.76 % Efficiency ratio 53.91 % 64.05 % 64.10 % 73.83 % 56.13 % 60.25 % 57.37 % Full-time equivalent employees 635 651 630 627 629 635 629 YIELD ON ASSETS / COST OF FUNDS Yield on loans 4.56 % 3.97 % 3.87 % 4.07 % 4.07 % 4.15 % 4.06 % Yield on securities 1.79 % 1.68 % 1.52 % 1.46 % 1.46 % 1.66 % 1.53 % Yield on other interest-earning assets 2.15 % 0.76 % 0.19 % 0.15 % 0.16 % 0.75 % 0.13 % Yield on total earning assets 4.04 % 3.32 % 2.99 % 3.12 % 3.13 % 3.45 % 3.21 % Yield on total assets 3.80 % 3.13 % 2.82 % 2.94 % 2.94 % 3.25 % 3.01 % Cost of deposits 0.24 % 0.19 % 0.19 % 0.19 % 0.23 % 0.20 % 0.26 % Cost of borrowed funds 1.99 % 1.90 % 1.82 % 1.66 % 1.67 % 1.90 % 1.72 % Cost of interest-bearing liabilities 0.81 % 0.72 % 0.66 % 0.63 % 0.69 % 0.73 % 0.75 % Cost of funds (total earning assets) 0.48 % 0.44 % 0.42 % 0.38 % 0.42 % 0.45 % 0.45 % Cost of funds (total assets) 0.45 % 0.41 % 0.39 % 0.36 % 0.39 % 0.42 % 0.42 % MORTGAGE BANKING ACTIVITY Total mortgage loans originated $ 163,902 190,896 168,187 210,228 259,512 522,985 742,011 Purchase mortgage loans originated $ 140,898 157,423 101,409 124,557 143,635 399,730 369,640 Refinance mortgage loans originated $ 23,004 33,473 66,778 85,671 115,877 123,255 372,371 Total saleable mortgage loans $ 59,740 52,328 75,747 129,546 177,837 187,815 513,989 Income on sale of mortgage loans $ 1,779 1,751 3,204 6,850 6,659 6,734 23,531 CAPITAL Tangible equity to tangible assets 7.37 % 7.56 % 7.53 % 7.79 % 8.17 % 7.37 % 8.17 % Tier 1 leverage capital ratio 9.63 % 9.31 % 9.04 % 9.19 % 9.33 % 9.63 % 9.33 % Common equity risk-based capital ratio 9.81 % 9.84 % 10.02 % 10.12 % 10.34 % 9.81 % 10.34 % Tier 1 risk-based capital ratio 10.86 % 10.91 % 11.13 % 11.26 % 11.53 % 10.86 % 11.53 % Total risk-based capital ratio 13.71 % 13.78 % 14.09 % 13.95 % 12.47 % 13.71 % 12.47 % Tier 1 capital $ 485,499 473,065 464,396 456,133 448,010 485,499 448,010 Tier 1 plus tier 2 capital $ 613,161 597,495 587,976 565,143 484,594 613,161 484,594 Total risk-weighted assets $ 4,471,939 4,337,040 4,173,590 4,051,253 3,884,999 4,471,939 3,884,999 Book value per common share $ 26.24 27.05 27.55 28.82 28.78 26.24 28.78 Tangible book value per common share $ 23.07 23.87 24.36 25.61 25.53 23.07 25.53 Cash dividend per common share $ 0.32 0.31 0.31 0.30 0.30 0.94 0.88 ASSET QUALITY Gross loan charge-offs $ 0 15 205 179 744 220 865 Recoveries $ 246 336 294 1,519 354 876 1,221 Net loan charge-offs (recoveries) $ (246) (321) (89) (1,340) 390 (656) (356) Net loan charge-offs to average loans (0.03 %) (0.04 %) (0.01 %) (0.16 %) 0.05 % (0.02 %) (0.01 %) Allowance for credit losses $ 39,120 35,974 35,153 35,363 37,423 39,120 37,423 Allowance to loans 1.01 % 0.97 % 0.99 % 1.02 % 1.13 % 1.01 % 1.13 % Nonperforming loans $ 1,416 1,787 1,612 2,468 2,766 1,416 2,766 Other real estate/repossessed assets $ 0 0 0 0 111 0 111 Nonperforming loans to total loans 0.04 % 0.05 % 0.05 % 0.07 % 0.08 % 0.04 % 0.08 % Nonperforming assets to total assets 0.03 % 0.04 % 0.03 % 0.05 % 0.06 % 0.03 % 0.06 % NONPERFORMING ASSETS - COMPOSITION Residential real estate: Land development $ 30 30 31 32 33 30 33 Construction $ 0 0 0 0 0 0 0 Owner occupied / rental $ 1,138 1,508 1,579 1,768 2,063 1,138 2,063 Commercial real estate: Land development $ 0 0 0 0 0 0 0 Construction $ 0 0 0 0 0 0 0 Owner occupied $ 0 0 0 0 100 0 100 Non-owner occupied $ 0 0 0 0 0 0 0 Non-real estate: Commercial assets $ 248 248 0 662 673 248 673 Consumer assets $ 0 1 2 6 8 0 8 Total nonperforming assets 1,416 1,787 1,612 2,468 2,877 1,416 2,877 NONPERFORMING ASSETS - RECON Beginning balance $ 1,787 1,612 2,468 2,877 3,150 2,468 4,085 Additions $ 0 309 93 218 361 402 999 Return to performing status $ (160) 0 (213) 0 (50) (373) (165) Principal payments $ (211) (134) (641) (377) (291) (986) (1,334) Sale proceeds $ 0 0 0 (111) (209) 0 (286) Loan charge-offs $ 0 0 (95) (139) 0 (95) (88) Valuation write-downs $ 0 0 0 0 (84) 0 (334) Ending balance $ 1,416 1,787 1,612 2,468 2,877 1,416 2,877 LOAN PORTFOLIO COMPOSITION Commercial: Commercial & industrial $ 1,213,630 1,187,650 1,153,814 1,137,419 1,074,394 1,213,630 1,074,394 Land development & construction $ 60,970 57,808 52,693 43,240 38,380 60,970 38,380 Owner occupied comm'l R/E $ 643,577 598,593 582,732 565,758 551,762 643,577 551,762 Non-owner occupied comm'l R/E $ 1,002,638 1,003,118 1,007,361 1,027,415 998,697 1,002,638 998,697 Multi-family & residential rental $ 224,247 224,591 207,962 176,593 179,126 224,247 179,126 Total commercial $ 3,145,062 3,071,760 3,004,562 2,950,425 2,842,359 3,145,062 2,842,359 Retail: 1-4 family mortgages $ 705,442 623,599 522,556 442,546 411,618 705,442 411,618 Home equity & other consumer $ 30,454 28,441 28,672 60,488 59,732 30,454 59,732 Total retail $ 735,896 652,040 551,228 503,034 471,350 735,896 471,350 Total loans $ 3,880,958 3,723,800 3,555,790 3,453,459 3,313,709 3,880,958 3,313,709 END OF PERIOD BALANCES Loans $ 3,880,958 3,723,800 3,555,790 3,453,459 3,313,709 3,880,958 3,313,709 Securities $ 600,720 621,359 623,382 610,745 577,566 600,720 577,566 Other interest-earning assets $ 220,909 389,938 698,724 915,755 741,557 220,909 741,557 Total earning assets (before allowance) $ 4,702,587 4,735,097 4,877,896 4,979,959 4,632,832 4,702,587 4,632,832 Total assets $ 5,016,934 5,058,555 5,175,899 5,257,749 4,964,412 5,016,934 4,964,412 Noninterest-bearing deposits $ 1,716,904 1,740,432 1,686,203 1,677,952 1,647,380 1,716,904 1,647,380 Interest-bearing deposits $ 2,129,181 2,133,461 2,290,048 2,405,241 2,221,611 2,129,181 2,221,611 Total deposits $ 3,846,085 3,873,893 3,976,251 4,083,193 3,868,991 3,846,085 3,868,991 Total borrowed funds $ 675,332 703,809 724,578 694,588 619,441 675,332 619,441 Total interest-bearing liabilities $ 2,804,513 2,837,270 3,014,626 3,099,829 2,841,052 2,804,513 2,841,052 Shareholders' equity $ 416,261 428,983 436,471 456,559 452,278 416,261 452,278 AVERAGE BALANCES Loans $ 3,814,338 3,633,587 3,484,511 3,373,551 3,276,863 3,645,353 3,308,119 Securities $ 618,043 615,733 613,317 600,852 547,336 615,715 484,020 Other interest-earning assets $ 294,969 530,571 784,193 738,328 733,801 534,786 648,780 Total earning assets (before allowance) $ 4,727,350 4,779,891 4,882,021 4,712,731 4,558,000 4,795,854 4,440,919 Total assets $ 5,025,998 5,077,458 5,168,562 5,010,786 4,856,611 5,090,150 4,730,482 Noninterest-bearing deposits $ 1,723,609 1,706,349 1,625,453 1,708,052 1,641,158 1,685,497 1,590,969 Interest-bearing deposits $ 2,144,047 2,201,797 2,364,437 2,194,644 2,125,920 2,235,952 2,076,221 Total deposits $ 3,867,656 3,908,146 3,989,890 3,902,696 3,767,078 3,921,449 3,667,190 Total borrowed funds $ 689,091 705,774 707,478 632,036 614,061 700,713 595,105 Total interest-bearing liabilities $ 2,833,138 2,907,571 3,071,915 2,826,680 2,739,981 2,936,665 2,671,326 Shareholders' equity $ 430,093 428,873 449,863 455,084 455,902 436,204 448,516 View original content: https://www.prnewswire.com/news-releases/mercantile-bank-corporation-announces-robust-third-quarter-2022-results-301651421.html SOURCE Mercantile Bank Corporation

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