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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 000-26719
MERCANTILE BANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-3360865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5650 BYRON CENTER AVENUE SW, WYOMING, MI 49509
(Address of principal executive offices) (Zip Code)
(616) 406-3777
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
At August 6, 2004, there were 7,175,930 shares of Common Stock outstanding.
1
MERCANTILE BANK CORPORATION
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2004 (Unaudited) and December 31, 2003..................................... 3
Consolidated Statements of Income and Comprehensive Income -
Three and Six Months Ended June 30, 2004 (Unaudited) and
June 30, 2003 (Unaudited)........................................................... 4
Consolidated Statements of Changes in Shareholders' Equity -
Six Months Ended June 30, 2004 (Unaudited) and
June 30, 2003 (Unaudited)........................................................... 5
Consolidated Statements of Cash Flows -
Three and Six Months Ended June 30, 2004 (Unaudited) and
June 30, 2003 (Unaudited)........................................................... 6
Notes to Consolidated Financial Statements (Unaudited)................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 24
Item 4. Controls and Procedures....................................................... 26
PART II. Other Information
Item 1. Legal Proceedings............................................................. 27
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities.................................................................. 27
Item 3. Defaults upon Senior Securities............................................... 27
Item 4. Submission of Matters to a Vote of Security Holders........................... 27
Item 5. Other Information............................................................. 28
Item 6. Exhibits and Reports on Form 8-K.............................................. 28
Signatures............................................................................. 30
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
---- ----
(Unaudited)
ASSETS
Cash and due from banks $ 35,005,000 $ 16,309,000
Short-term investments 967,000 255,000
--------------- ----------------
Total cash and cash equivalents 35,972,000 16,564,000
Securities available for sale 69,751,000 71,421,000
Securities held to maturity (fair value of $48,921,000
at June 30, 2004 and $47,102,000 at December 31, 2003) 48,466,000 45,112,000
Federal Home Loan Bank stock 6,644,000 4,977,000
Total loans and leases 1,185,363,000 1,035,963,000
Allowance for loan and lease losses (16,312,000) (14,379,000)
---------------- -----------------
Total loans and leases, net 1,169,051,000 1,021,584,000
Premises and equipment, net 18,468,000 15,305,000
Bank owned life insurance policies 16,796,000 16,441,000
Accrued interest receivable 4,257,000 4,098,000
Other assets 9,221,000 7,835,000
--------------- ----------------
Total assets $ 1,378,626,000 $ 1,203,337,000
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 114,441,000 $ 76,579,000
Interest-bearing 931,628,000 826,313,000
--------------- ----------------
Total deposits 1,046,069,000 902,892,000
Securities sold under agreements to repurchase 46,960,000 49,545,000
Federal funds purchased 7,000,000 6,000,000
Federal Home Loan Bank advances 120,000,000 90,000,000
Subordinated debentures 16,495,000 16,495,000
Other borrowed money 1,414,000 1,114,000
Accrued expenses and other liabilities 6,416,000 7,090,000
--------------- ----------------
Total liabilities 1,244,354,000 1,073,136,000
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares
authorized, none issued 0 0
Common stock, no par value: 9,000,000 shares authorized;
7,175,896 shares outstanding at June 30, 2004 and
6,805,914 shares outstanding at December 31, 2003 130,902,000 118,560,000
Retained earnings 4,166,000 11,421,000
Accumulated other comprehensive income (loss) (796,000) 220,000
---------------- ----------------
Total shareholders' equity 134,272,000 130,201,000
--------------- ----------------
Total liabilities and shareholders' equity $ 1,378,626,000 $ 1,203,337,000
=============== ================
See accompanying notes to consolidated financial statements.
3
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans and leases, including fees $ 14,722,000 $ 12,223,000 $ 28,630,000 $ 23,666,000
Investment securities 1,400,000 1,186,000 2,826,000 2,402,000
Federal funds sold 8,000 23,000 27,000 39,000
Short-term investments 0 1,000 1,000 1,000
--------------- ------------- ------------- -------------
Total interest income 16,130,000 13,433,000 31,484,000 26,108,000
Interest expense
Deposits 4,929,000 5,165,000 9,679,000 10,401,000
Short-term borrowings 186,000 173,000 356,000 344,000
Federal Home Loan Bank advances 597,000 183,000 1,126,000 257,000
Long-term borrowings 418,000 413,000 834,000 825,000
--------------- ------------- ------------- -------------
Total interest expense 6,130,000 5,934,000 11,995,000 11,827,000
--------------- ------------- ------------- -------------
NET INTEREST INCOME 10,000,000 7,499,000 19,489,000 14,281,000
Provision for loan and lease losses 1,230,000 845,000 2,474,000 1,470,000
--------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES 8,770,000 6,654,000 17,015,000 12,811,000
Noninterest income
Services charges on accounts 312,000 280,000 611,000 549,000
Net gain on sales of securities 0 212,000 78,000 212,000
Net gain on sales of loans 40,000 0 40,000 0
Other income 649,000 755,000 1,311,000 1,475,000
--------------- ------------- ------------- -------------
Total noninterest income 1,001,000 1,247,000 2,040,000 2,236,000
Noninterest expense
Salaries and benefits 3,510,000 2,759,000 6,793,000 5,256,000
Occupancy 383,000 345,000 769,000 679,000
Furniture and equipment 267,000 245,000 540,000 466,000
Other expense 1,240,000 1,012,000 2,453,000 1,989,000
--------------- ------------- ------------- -------------
Total noninterest expenses 5,400,000 4,361,000 10,555,000 8,390,000
--------------- ------------- ------------- -------------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 4,371,000 3,540,000 8,500,000 6,657,000
Federal income tax expense 1,225,000 1,000,000 2,381,000 1,884,000
--------------- ------------- ------------- -------------
NET INCOME $ 3,146,000 $ 2,540,000 $ 6,119,000 $ 4,773,000
=============== ============= ============= =============
COMPREHENSIVE INCOME $ 1,740,000 $ 2,325,000 $ 5,103,000 $ 4,424,000
=============== ============= ============= =============
Basic earnings per share $ 0.44 $ 0.45 $ 0.85 $ 0.84
=============== ============= ============= =============
Diluted earnings per share $ 0.43 $ 0.44 $ 0.84 $ 0.82
=============== ============= ============= =============
Cash dividends per share $ 0.09 $ 0.08 $ 0.18 $ 0.16
=============== ============= ============= =============
Average basic shares outstanding 7,172,633 5,692,176 7,165,744 5,687,686
=============== ============= ============= =============
Average diluted shares outstanding 7,322,474 5,823,186 7,310,298 5,817,740
=============== ============= ============= =============
See accompanying notes to consolidated financial statements.
4
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Stock Earnings Income Equity
------------- ------------- ------------- -------------
BALANCE, JANUARY 1, 2003 $ 75,530,000 $ 3,250,000 $ 1,054,000 $ 79,834,000
Comprehensive income:
Net income for the period from
January 1, 2003 through
June 30, 2003 4,773,000 4,773,000
Change in net unrealized gain
(loss) on securities available for
sale, net of reclassifications
and tax effect (349,000) (349,000)
-------------
Total comprehensive income 4,424,000
Common stock cash dividends, $0.16 per share (866,000) (866,000)
Cash dividend reinvestment plan, 567 shares 14,000 14,000
Employee stock purchase plan, 935 shares 24,000 24,000
Stock option exercises, 15,436 shares 27,000 27,000
------------- ------------- ------------- -------------
BALANCE, JUNE 30, 2003 $ 75,595,000 $ 7,157,000 $ 705,000 $ 83,457,000
============= ============= ============= =============
BALANCE, JANUARY 1, 2004 $ 118,560,000 $ 11,421,000 $ 220,000 $ 130,201,000
Comprehensive income:
Net income for the period from
January 1, 2004 through
June 30, 2004 6,119,000 6,119,000
Change in net unrealized gain
(loss) on securities available for
sale, net of reclassifications
and tax effect (1,016,000) (1,016,000)
-------------
Total comprehensive income 5,103,000
Payment of 5% stock dividend, 340,180 shares 12,112,000 (12,116,000) (4,000)
Common stock cash dividends, $0.18 per share (1,258,000) (1,258,000)
Cash dividend reinvestment plan, 1,909 shares 65,000 65,000
..
Employee stock purchase plan, 1,094 shares 38,000 38,000
Stock option exercises, 26,799 shares 127,000 127,000
------------- ------------- ------------- -------------
BALANCE, JUNE 30, 2004 $ 130,902,000 $ 4,166,000 $ (796,000) $ 134,272,000
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
5
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,146,000 $ 2,540,000 $ 6,119,000 $ 4,773,000
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 436,000 516,000 848,000 967,000
Provision for loan and lease losses 1,230,000 845,000 2,474,000 1,470,000
Net gain on sales of loans (40,000) 0 (40,000) 0
Net gain on sales of securities 0 (212,000) (78,000) (212,000)
Net change in:
Accrued interest receivable 567,000 399,000 (159,000) (125,000)
Bank owned life insurance policies (178,000) (197,000) (355,000) (405,000)
Other assets (1,429,000) (1,217,000) (998,000) (701,000)
Accrued expenses and other liabilities 359,000 35,000 (674,000) 121,000
------------- ------------- ------------- -------------
Net cash used in operating activities 4,091,000 2,709,000 7,137,000 5,888,000
CASH FLOWS FROM INVESTING ACTIVITIES
Loan and leases originations and payments, net (74,426,000) (53,615,000) (149,901,000) (94,657,000)
Purchases of:
Securities available for sale (9,970,000) (16,380,000) (12,964,000) (25,129,000)
Securities held to maturity (2,910,000) (1,958,000) (4,336,000) (4,639,000)
Federal Home Loan Bank stock (860,000) (1,464,000) (1,667,000) (1,464,000)
Proceeds from:
Maturities, calls and repayments of
available for sale securities 3,016,000 8,253,000 11,340,000 14,827,000
Maturities, calls and repayments of
held to maturity securities 965,000 534,000 965,000 534,000
Sales of available for sale securities 0 8,336,000 1,748,000 8,336,000
Purchases of premises and equipment, net (2,195,000) (1,997,000) (3,774,000) (2,548,000)
Purchases of bank owned life insurance policies 0 0 0 (300,000)
------------- ------------- ------------- -------------
Net cash used in investing activities (86,380,000) (58,291,000) (158,589,000) (105,040,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 50,735,000 42,490,000 143,177,000 89,474,000
Net increase (decrease) in securities sold under
agreements to repurchase 5,347,000 (5,548,000) (2,585,000) (10,645,000)
Advances from Federal Home Loan Bank 20,000,000 30,000,000 30,000,000 30,000,000
Net increase (decrease) in other borrowed money 7,053,000 (1,917,000) 1,300,000 346,000
Stock option exercises 39,000 7,000 127,000 27,000
Employee stock purchase plan 22,000 14,000 38,000 24,000
Cash dividend reinvestment plan 46,000 14,000 65,000 14,000
Payment of cash dividends (646,000) (433,000) (1,258,000) (866,000)
Cash paid in lieu of fractional shares on
stock dividend 0 0 (4,000) 0
------------- ------------- ------------- -------------
Net cash from financing activities 82,596,000 64,627,000 170,860,000 108,374,000
------------- ------------- ------------- -------------
Net change in cash and cash equivalents 307,000 9,045,000 19,408,000 9,222,000
Cash and cash equivalents at beginning of period 35,665,000 28,294,000 16,564,000 28,117,000
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,972,000 $ 37,339,000 $ 35,972,000 $ 37,339,000
============= ============= ============= =============
Cash paid during the period for:
Interest $ 6,232,000 $ 6,294,000 $ 12,183,000 $ 11,724,000
Federal income tax 2,550,000 2,350,000 2,925,000 2,575,000
See accompanying notes to consolidated financial statements.
6
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The unaudited financial statements for the three
and six months ended June 30, 2004 include the consolidated results of
operations of Mercantile Bank Corporation and its consolidated
subsidiaries. These subsidiaries include Mercantile Bank of West Michigan
("our bank"), our bank's four subsidiaries, Mercantile Bank Mortgage
Company, LLC ("our mortgage company"), Mercantile BIDCO, Inc. ("our
BIDCO"), Mercantile Bank Real Estate Co., LLC ("our real estate company"),
and Mercantile Insurance Center, Inc. ("our insurance center"). These
consolidated financial statements have been prepared in accordance with
the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do
not include all disclosures required by accounting principles generally
accepted in the United States of America for a complete presentation of
our financial condition and results of operations. In the opinion of
management, the information reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary in order to make the
financial statements not misleading and for a fair presentation of the
results of operations for such periods. The results for the periods ended
June 30, 2004 should not be considered as indicative of results for a full
year. For further information, refer to the consolidated financial
statements and footnotes included in our annual report on Form 10-K for
the year ended December 31, 2003.
MBWM Capital Trust I ("the trust"), a business trust formed by Mercantile
Bank Corporation, sold 1.6 million trust preferred securities at $10.00
per trust preferred security in a September 1999 offering. Mercantile Bank
Corporation issued subordinated debentures to the trust in exchange for
the proceeds of the offering. The debentures and related debt issuance
costs represent the sole assets of the trust. Prior to 2004, the trust was
consolidated in our financial statements, with the trust preferred
securities issued by the trust reported in liabilities as "Trust preferred
securities" and the subordinated debentures eliminated in the
consolidation. Under new accounting guidance, FASB Interpretation No. 46,
as revised in December 2003, the trust is no longer consolidated.
Accordingly, Mercantile Bank Corporation does not report the securities
issued by the trust as liabilities, and instead reports as liabilities the
subordinated debentures issued by Mercantile Bank Corporation and held by
the trust, as these are no longer eliminated in consolidation. Amounts
previously reported as "Trust preferred securities" in liabilities has
been recaptioned "Subordinated debentures" and continue to be presented in
liabilities on the balance sheet. The effect of no longer consolidating
the trust does not significantly change the amounts reported as Mercantile
Bank Corporation's assets, liabilities, equity or interest expense.
Stock Dividend: All per share amounts and average shares outstanding have
been adjusted for all periods presented to reflect the 5% stock dividend
distributed on May 3, 2004. The Statement of Changes in Shareholders'
Equity reflects a transfer from retained earnings to common stock for the
value of the shares distributed.
Allowance for Loan and Lease Losses: The allowance for loan and lease
losses is a valuation allowance for probable incurred credit losses,
increased by the provision for loan and lease losses and recoveries, and
decreased by charge-offs. Management estimates the allowance balance
required based on past loan loss experience, the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, and economic conditions. Allocations of the allowance
may be made for specific loans and leases, but the entire allowance is
available for any loan or lease that, in management's judgment, should be
charged-off. Loan and lease losses are charged against the allowance when
management believes the uncollectibility of a loan or lease balance is
confirmed.
7
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
A loan or lease is impaired when full payment under the loan or lease
terms is not expected. Impairment is evaluated in aggregate for
smaller-balance loans of similar nature such as residential mortgage,
consumer and credit card loans, and on an individual loan basis for other
loans. If a loan or lease is impaired, a portion of the allowance is
allocated so that the loan or lease is reported, net, at the present value
of estimated future cash flows using the loan's or lease's existing rate
or at the fair value of collateral if repayment is expected solely from
the collateral. Loans and leases are evaluated for impairment when
payments are delayed, typically 90 days or more, or when the internal
grading system indicates a doubtful classification.
Stock Compensation: Employee compensation expense under stock option plans
is reported using the intrinsic value method. No stock-based compensation
cost is reflected in net income, as all options granted had an exercise
price equal to or greater than the market price of the underlying common
stock at date of grant. The following table illustrates the effect on net
income and earnings per share if expense was measured using the fair value
recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation.
Quarter ended Six months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Net income as reported $ 3,146,000 $ 2,540,000 $ 6,119,000 $ 4,773,000
Deduct: Stock-based compensation
expense determined under fair
value based method 63,000 81,000 126,000 163,000
------------- ------------- ------------- -------------
Pro forma net income 3,083,000 2,459,000 5,993,000 4,610,000
============= ============= ============= =============
Basic earnings per share as reported $ 0.44 $ 0.45 $ 0.85 $ 0.84
Pro forma basic earnings per share 0.43 0.43 0.84 0.81
Diluted earnings per share
as reported $ 0.43 $ 0.44 $ 0.84 $ 0.82
Pro forma diluted earnings per share 0.42 0.42 0.82 0.79
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
Quarter ended Six months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Risk-free interest rate 3.25% 3.25% 3.25% 3.25%
Expected option life 7 Years 7 Years 7 Years 7 Years
Expected stock price volatility 22% 20% 22% 20%
Dividend yield 1.00% 1.30% 1.00% 1.30%
8
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. LOANS AND LEASES
Our total loans and leases at June 30, 2004 were $1,185.4 million compared
to $1,036.0 million at December 31, 2003, an increase of $149.4 million,
or 14.4%. The components of our outstanding balances at June 30, 2004 and
December 31, 2003, and the percentage changes in loans and leases from the
end of 2003 to the end of the second quarter 2004 are as follows:
Percent
June 30, 2004 December 31, 2003 Increase/
Balance % Balance % (Decrease)
------- - ------- - ----------
Real Estate:
Construction and land
development $ 119,086,000 10.0% $ 117,649,000 11.4% 1.2%
Secured by 1-4 family
properties 107,603,000 9.1 92,339,000 8.9 16.5
Secured by multi-family
properties 34,312,000 2.9 28,950,000 2.8 18.5
Secured by nonresidential
properties 575,757,000 48.6 485,080,000 46.8 18.7
Commercial 341,067,000 28.8 304,800,000 29.4 11.9
Leases 2,381,000 0.2 2,309,000 0.2 3.1
Consumer 5,157,000 0.4 4,836,000 0.5 6.6
--------------- ----- --------------- ----- ----
Total loans and leases $ 1,185,363,000 100.0% $ 1,035,963,000 100.0% 14.4%
=============== ===== =============== ===== ====
3. ALLOWANCE FOR LOAN AND LEASE LOSSES
The following is a summary of the change in our allowance for loan and
lease losses account for the three and six months ended June 30:
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
Balance at beginning of
period $ 15,337,000 $ 11,406,000 $ 14,379,000 $ 10,890,000
Charge-offs (264,000) (297,000) (562,000) (429,000)
Recoveries 9,000 204,000 21,000 227,000
Provision for loan and
lease losses 1,230,000 845,000 2,474,000 1,470,000
------------- ------------- ------------- --------------
Balance at June 30 $ 16,312,000 $ 12,158,000 $ 16,312,000 $ 12,158,000
============= ============= ============= ==============
9
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. PREMISES AND EQUIPMENT - NET
Premises and equipment are comprised of the following:
June 30, December 31,
2004 2003
---- ----
Land and improvements $ 5,753,000 $ 5,745,000
Buildings and leasehold improvements 11,730,000 8,183,000
Furniture and equipment 5,154,000 4,935,000
------------- -------------
22,637,000 18,863,000
Less accumulated depreciation 4,169,000 3,558,000
------------- -------------
Premises and equipment, net $ 18,468,000 $ 15,305,000
============= =============
Depreciation expense amounted to $307,000 during the second quarter of
2004, compared to $285,000 in the second quarter of 2003. Depreciation
expense amounted to $610,000 during the first six months of 2004, compared
to $551,000 during the first six months of 2003.
5. DEPOSITS
Our total deposits at June 30, 2004 were $1,046.1 million compared to
$902.9 million at December 31, 2003, an increase of $143.2 million, or
15.9%. The components of our outstanding balances at June 30, 2004 and
December 31, 2003, and percentage change in deposits from the end of 2003
to the end of the second quarter 2004 are as follows:
Percent
June 30, 2004 December 31, 2003 Increase/
Balance % Balance % (Decrease)
------- - ------- - ---------
Noninterest-bearing demand $ 114,441,000 10.9% $ 76,579,000 8.5% 49.4%
Interest-bearing checking 30,411,000 2.9 34,241,000 3.8 (12.7)
Money market 8,254,000 0.8 8,290,000 0.9 (0.4)
Savings 129,233,000 12.4 101,710,000 11.3 27.1
Time, under $100,000 7,436,000 0.7 8,163,000 0.9 (8.9)
Time, $100,000 and over 83,439,000 8.0 82,288,000 9.1 1.4
--------------- ----- ------------- ----- -----
373,214,000 35.7 311,271,000 34.5 19.9
Out-of-area time,
under $100,000 102,060,000 9.8 98,079,000 10.9 4.1
Out-of-area time,
$100,000 and over 570,795,000 54.5 493,542,000 54.6 15.7
--------------- ----- ------------- ----- -----
672,855,000 64.3 591,621,000 65.5 13.7
--------------- ----- ------------- ----- -----
Total deposits $ 1,046,069,000 100.0% $ 902,892,000 100.0% 15.9%
=============== ===== ============= ===== =====
10
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. SHORT-TERM BORROWINGS
Information relating to our securities sold under agreements to repurchase
follows:
June 30, December 31,
2004 2003
---- ----
Outstanding balance at end of period $46,960,000 $49,545,000
Average interest rate at end of period 1.38% 1.38%
Average balance during the period $46,373,000 $45,865,000
Average interest rate during the period 1.39% 1.45%
Maximum month end balance during the period $50,138,000 $55,270,000
Securities sold under agreements to repurchase ("repurchase agreements")
generally have original maturities of less than one year. Repurchase
agreements are treated as financings and the obligations to repurchase
securities sold are reflected as liabilities. Securities involved with the
agreements are recorded as assets of our bank and are primarily held in
safekeeping by correspondent banks. Repurchase agreements are offered
principally to certain large deposit customers as deposit equivalent
investments.
7. FEDERAL HOME LOAN BANK ADVANCES
Our outstanding balances at June 30, 2004 and December 31, 2003 were as
follows.
June 30, December 31,
2004 2003
---- ----
Maturities July 2004 through September 2006,
fixed rates from 1.46% to 3.21%, averaging 2.14% $110,000,000 0
Maturities in May 2006, floating rates tied to Libor
indices, averaging 1.33% as of June 30, 2004 10,000,000 0
Maturities January 2004 through September 2006,
fixed rates from 1.54% to 3.21%, averaging 2.07% 0 $ 90,000,000
------------ ------------
Total Federal Home Loan Bank advances $120,000,000 $ 90,000,000
============ ============
Each advance is payable at its maturity date, and is subject to a
prepayment fee if paid prior to the maturity date. The advances are
collateralized by residential mortgage loans, first mortgage liens on
multi-family residential property loans, first mortgage liens on
commercial real estate property loans, and substantially all other assets
of our bank, under a blanket lien arrangement. Our borrowing line of
credit as of June 30, 2004 totaled $182.5 million, with availability
approximating $54.0 million.
11
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. FEDERAL HOME LOAN BANK ADVANCES (Continued)
Maturities of FHLB advances currently outstanding during the next five
years are:
2004 $ 30,000,000
2005 55,000,000
2006 35,000,000
2007 0
2008 0
8. COMMITMENTS AND OFF-BALANCE-SHEET RISK
Our bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of our
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Loan commitments to extend credit
are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Standby letters of credit are
conditional commitments issued by our bank to guarantee the performance of
a customer to a third party. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.
These instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized, if any, in the balance sheet. Our bank's
maximum exposure to loan loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional
amount of those instruments. Our bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments. Collateral, such as accounts receivable, securities,
inventory, property and equipment, is generally obtained based on
management's credit assessment of the borrower.
A summary of the contractual amounts of our financial instruments with
off-balance-sheet risk at June 30, 2004 and December 31, 2003 follows:
June 30, December 31,
2004 2003
---- ----
Commercial unused lines of credit $194,927,000 $176,943,000
Unused lines of credit secured by 1-4 family
residential properties 23,385,000 19,020,000
Credit card unused lines of credit 11,234,000 8,990,000
Other consumer unused lines of credit 6,964,000 5,569,000
Commitments to make loans 47,322,000 73,570,000
Standby letters of credit 57,138,000 57,918,000
------------ ------------
Total loan and leases commitments $340,970,000 $342,010,000
============ ============
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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. REGULATORY MATTERS
We are subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain
cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on our
financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. If not
well capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is
asset growth and expansion, and plans for capital restoration are
required.
Our actual capital levels and minimum required levels were (dollars in
thousands):
Minimum Required
to be Well
Minimum Required Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
June 30, 2004
Total capital (to risk
weighted assets)
Consolidated $167,380 12.7% $105,165 8.0% $131,456 10.0%
Bank 163,709 12.5 104,922 8.0 131,153 10.0
Tier 1 capital (to risk
weighted assets)
Consolidated 151,068 11.5 52,582 4.0 78,874 6.0
Bank 147,397 11.2 52,461 4.0 78,692 6.0
Tier 1 capital (to
average assets)
Consolidated 151,068 11.4 53,221 4.0 66,526 5.0
Bank 147,397 11.1 53,121 4.0 66,401 5.0
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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. REGULATORY MATTERS (Continued)
Minimum Required
to be Well
Minimum Required Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2003
Total capital (to risk
weighted assets)
Consolidated $160,360 13.8% $ 92,711 8.0% $115,888 10.0%
Bank 156,950 13.6 92,556 8.0 115,695 10.0
Tier 1 capital (to risk
weighted assets)
Consolidated 145,981 12.6 46,356 4.0 69,533 6.0
Bank 142,571 12.3 46,278 4.0 69,417 6.0
Tier 1 capital (to
average assets)
Consolidated 145,981 12.5 46,756 4.0 58,444 5.0
Bank 142,571 12.2 46,703 4.0 58,378 5.0
Our capital levels as of June 30, 2004 include the $16.0 million in trust
preferred securities issued by the trust subject to certain limitations.
Federal Reserve guidelines limit the amount of trust preferred securities
which can be included in our Tier 1 capital to 25% of total Tier 1
capital. As of June 30, 2004, the entire $16.0 million of the trust
preferred securities were included as Tier 1 capital.
Our and our bank's ability to pay cash and stock dividends is subject to
limitations under various laws and regulations and to prudent and sound
banking practices. We declared a 5% stock dividend on April 7, 2004, that
was distributed on May 3, 2004 to record holders as of April 16, 2004. All
earnings per share and dividend per share information have been adjusted
for the 5% stock dividend. We have also paid two cash dividends on our
common stock during 2004. On January 6, 2004, we declared a $0.09 per
share cash dividend on our common stock, which was paid on March 10, 2004
to record holders as of February 10, 2004. On April 7, 2004, we declared a
$0.09 per share cash dividend on our common stock, which was paid on June
10, 2004 to record holders as of May 10, 2004. On July 7, 2004, we
declared a $0.09 per share cash dividend on our common stock, which is
payable on September 10, 2004 to record holders as of August 10, 2004.
10. BENEFIT PLANS
We sponsor an employee stock purchase plan which allows employees to defer
after-tax payroll dollars and purchase our common stock on a quarterly
basis. We have registered 26,250 shares of common stock to be issued and
purchased under the plan; however, the plan allows for shares to be
purchased directly from us or on the open market. During the six months
ended June 30, 2004, we issued 1,094 shares under the plan.
14
MERCANTILE BANK CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections about the
financial services industry, the economy, and about our company. Words such as
"anticipates", "believes", "estimates", "expects", "forecasts", "intends", "is
likely", "plans", "projects", variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecasted in
such forward-looking statements. We undertake no obligation to update, amend, or
clarify forward looking-statements, whether as a result of new information,
future events (whether anticipated or unanticipated), or otherwise.
Future Factors include, among others, changes in interest rates and interest
rate relationships; demand for products and services; the degree of competition
by traditional and non-traditional competitors; changes in banking regulation;
changes in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes; the outcomes
of contingencies; trends in customer behavior as well as their ability to repay
loans; and changes in the national and local economy. These are representative
of the Future Factors that could cause a difference between an ultimate actual
outcome and a forward-looking statement.
INTRODUCTION
The following discussion compares the financial condition of Mercantile Bank
Corporation and its consolidated subsidiaries, Mercantile Bank of West Michigan
("our bank"), our bank's four subsidiaries Mercantile Bank Mortgage Company
("our mortgage company"), Mercantile BIDCO, Inc. ("our BIDCO"), Mercantile Bank
Real Estate Co., LLC ("our real estate company") and Mercantile Insurance
Center, Inc. ("our insurance center"), at June 30, 2004 to December 31, 2003 and
the results of operations for the three and six months ended June 30, 2004 and
June 30, 2003. This discussion should be read in conjunction with the interim
consolidated financial statements and footnotes included in this report. Unless
the text clearly suggests otherwise, references in this report to "us," "we,"
"our," or "the company" include Mercantile Bank Corporation and its consolidated
subsidiaries referred to above.
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require management to
apply significant judgment to various accounting, reporting and disclosure
matters. Management must use assumptions and estimates to apply these principles
where actual measurements are not possible or practical. The Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with our unaudited financial statements included in this
report. For a complete discussion of our significant accounting policies, see
footnotes to our Consolidated Financial Statements included on pages F-27
through F-31 in our Form 10-K for the fiscal year ended December 31, 2003
(Commission file number 000-26719). Below is a discussion of our Allowance for
Loan and Lease Losses policy. This policy is critical because it is highly
dependent upon subjective or complex judgments, assumptions and estimates.
Changes in such estimates may have a significant impact on the financial
statements, and actual results may differ from those estimates. Management has
reviewed the application of this policy with the Audit Committee of the
Company's Board of Directors.
15
MERCANTILE BANK CORPORATION
Allowance for Loan and Lease Losses: The allowance for loan and lease losses is
a valuation allowance for probable incurred credit losses, increased by the
provision for loan and lease losses and recoveries, and decreased by
charge-offs. Management estimates the allowance balance required based on past
loan loss experience, the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, and economic
conditions. Allocations of the allowance may be made for specific loans and
leases, but the entire allowance is available for any loan or lease that, in
management's judgment, should be charged-off. Loan and lease losses are charged
against the allowance when management believes the uncollectibility of a loan or
lease balance is confirmed.
A loan or lease is impaired when full payment under the loan or lease terms is
not expected. Impairment is evaluated in aggregate for smaller-balance loans of
similar nature such as residential mortgage, consumer and credit card loans, and
on an individual loan basis for other loans. If a loan or lease is impaired, a
portion of the allowance is allocated so that the loan or lease is reported,
net, at the present value of estimated future cash flows using the loan's or
lease's existing rate or at the fair value of collateral if repayment is
expected solely from the collateral. Loans and leases are evaluated for
impairment when payments are delayed, typically 90 days or more, or when the
internal grading system indicates a doubtful classification.
FINANCIAL CONDITION
During the first six months of 2004, our assets increased from $1,203.3 million
on December 31, 2003, to $1,378.6 million on June 30, 2004. This represents a
total increase in assets of $175.3 million, or 14.6%. The asset growth was
comprised primarily of a $147.5 million increase in net loans, an increase of
$19.4 million in cash and cash equivalents and a $3.4 million increase in
securities. The increase in assets was primarily funded by a $143.2 million
growth in deposits and an increase of $30.0 million in Federal Home Loan Bank
advances.
Commercial loans and leases increased by $133.8 million during the first six
months of 2004, and at June 30, 2004 totaled $1,072.6 million, or 90.5% of the
total loan and lease portfolio. The continued significant concentration of the
loan and lease portfolio in commercial loans and leases and the rapid growth of
this portion of our lending business is consistent with our stated strategy of
focusing a substantial amount of efforts on "wholesale" banking. Corporate and
business lending continues to be an area of expertise of our senior management
team, and our 15 commercial lenders have over 220 years of combined commercial
lending experience, ten of whom have 15 years or more experience. Of each of the
loan categories that we originate, commercial loans and leases are most
efficiently originated and managed; thus limiting overhead costs by
necessitating the attention of fewer full-time employees. Our commercial lending
business generates the greatest amount of local deposits, and is our primary
source of demand deposits.
Residential mortgage loans and consumer loans increased by $15.3 million and
$0.3 million, respectively, during the first six months of 2004. As of June 30,
2004, residential mortgage and consumer loans totaled a combined $112.8 million,
or 9.5% of the total loan and lease portfolio. Although we plan to increase our
non-commercial loan portfolios in future periods, given our wholesale banking
strategy, we expect the commercial sector of our lending efforts and resultant
assets to remain the dominant loan portfolio category.
16
MERCANTILE BANK CORPORATION
Management believes the quality of our loan and lease portfolio remains strong.
Net loan and lease charge-offs during the first six months of 2004 totaled
$541,000, or 0.10% of average total loans and leases on an annualized basis.
During the first six months of 2003, net loan and lease charge-offs totaled
$202,000, or 0.05% of average total loans and leases on an annualized basis.
Past due and nonaccrual loans and leases at June 30, 2004 totaled $3.7 million,
or 0.31% of period-ending total loans and leases. At December 31, 2003, past due
and nonaccrual loans and leases totaled $1.8 million, or 0.17% of period-ending
total loans and leases. The $1.9 million increase during the first six months of
2004, as well as a vast majority of the $541,000 net loan and lease charge-off
figure noted above, is primarily attributable to two commercial loan
relationships. We believe we have instilled a strong credit culture within our
lending departments as it pertains to the underwriting and administration
processes, which in part is reflected in our loan and lease net charge-off and
delinquency ratios. Over 98% of the loan portfolio consists of loans extended
directly to companies and individuals doing business and residing within our
market area. The remaining portion is comprised of commercial loans participated
with certain commercial banks outside the immediate area, which we underwrite
using the same loan underwriting criteria as though our bank was the originating
bank.
Securities increased $3.4 million during the first six months of 2004. Purchases
during the first six months of 2004 totaled $19.0 million. Proceeds from the
sales of securities totaled $1.7 million, while proceeds from the maturities,
calls and repayments of securities totaled $12.3 million. At June 30, 2004, the
net unrealized loss on available for sale securities equaled $1.0 million,
compared to a net unrealized gain of $0.3 million at December 31, 2003. Our
securities portfolio consists of U.S. Government Agency bonds, mortgage-backed
securities issued or guaranteed by U.S. Governments Agencies, investment-grade
tax-exempt municipal securities and Federal Home Loan Bank of Indianapolis
("FHLBI") stock.
Cash and cash equivalents increased $19.4 million during the first six months of
2004, totaling $36.0 million on June 30, 2004. Cash and due from bank balances
were up $18.7 million, with short-term investments up $0.7 million. Our
commercial lending and wholesale funding focus results in relatively large
day-to-day fluctuations of our cash and cash equivalent balances. The average
cash and cash equivalents during the first six months of 2004 equaled $34.0
million, well above the relatively low balance of $16.6 million on December 31,
2003.
Premises and equipment at June 30, 2004 equaled $18.5 million, an increase of
$3.2 million since December 31, 2003, and an increase of $6.0 million since
March 31, 2003. The vast majority of the increase relates to our construction of
two new banking facilities. On April 30, 2003, our bank purchased an existing
building situated on 2.75 acres of land located about two miles north of the
center of downtown Grand Rapids, Michigan for $1.3 million. The building was
demolished, and we are now in the construction phase of building a new
four-story facility on this property. This facility will serve as the new
location for our current downtown leased facility, which includes our commercial
lending function, and will house the administration and loan operations
functions currently housed at other of our locations. Expected completion date
is mid-2005. On September 29, 2003, our bank purchased ten acres of land located
in Holland, Michigan for $0.9 million. We are now in the construction phase of
building a new two-story facility on this property. This facility will serve as
the new location for our current full-service branch and lending office which
currently operates out of a leased facility. Expected completion date is
late-2004.
17
MERCANTILE BANK CORPORATION
Deposits increased $143.2 million during the first six months of 2004, totaling
$1,046.1 million at June 30, 2004. Local deposits increased $61.9 million, or
19.9% and out-of-area deposits increased $81.3 million. As a percent of total
deposits, local deposits increased from 34.5% on December 31, 2003, to 35.7% on
June 30, 2004. Noninterest-bearing demand deposits, comprising 10.9% of total
deposits, increased $37.8 million during the first six months of 2004. Savings
deposits (12.4% of total deposits) increased $27.5 million, interest-bearing
checking deposits (2.9% of total deposits) decreased $3.8 million and money
market deposit accounts (0.8% of total deposits) was relatively unchanged during
the first six months of 2004. Local certificates of deposit, comprising 8.7% of
total deposits, increased by $0.4 million during the first six months of 2004.
Out-of-area deposits increased $81.3 million during the first six months of
2004, totaling $672.9 million as of June 30, 2004. Out-of-area deposits consist
primarily of certificates of deposit obtained from depositors located outside
our market area and placed by deposit brokers for a fee, but also include
certificates of deposit obtained from the deposit owners directly. Out-of-area
deposits are utilized to support our asset growth, and are generally a lower
cost source of funds when compared to the deposit interest rates that would have
to be offered in the local market to generate a sufficient level of funds.
During the first six months of 2004 rates paid on new out-of-area certificates
of deposit were generally about the same as rates paid on new certificates of
deposit issued to local customers. Overhead costs associated with the
out-of-area deposits are considerably less than the overhead costs that would be
incurred to administer a similar level of local deposits. Although local
deposits have and are expected to increase as new business, governmental and
consumer deposit relationships are established, our relatively high reliance on
out-of-area deposits will likely continue.
Securities sold under agreements to repurchase ("repurchase agreements")
decreased by $2.6 million during the first six months of 2004, totaling $47.0
million as of June 30, 2004. As part of our sweep account program, collected
funds from certain business noninterest-bearing checking accounts are invested
into over-night interest-bearing repurchase agreements. Although not considered
a deposit account and therefore not afforded federal deposit insurance, the
repurchase agreements have characteristics very similar to that of our business
checking deposit accounts.
FHLBI advances increased by $30.0 million during the first six months of 2004,
totaling $120.0 million as of June 30, 2004. The advances are collateralized by
residential mortgage loans, first mortgage liens on multi-family residential
property loans and first mortgage liens on commercial real estate property
loans, and substantially all other assets of our bank, under a blanket lien
arrangement. Our borrowing line of credit as of June 30, 2004 totaled $182.5
million, with availability of approximately $54.0 million. FHLBI advances, along
with out-of-area deposits, are the primary components of our wholesale funding
program.
LIQUIDITY
Liquidity is measured by our ability to raise funds through deposits, borrowed
funds, capital or cash flow from the repayment of loans and securities. These
funds are used to meet deposit withdrawals, maintain reserve requirements, fund
loans and support our operations. Liquidity is primarily achieved through the
growth of deposits (both local and out-of-area) and advances from the FHLBI, as
well as liquid assets such as securities available for sale, matured securities,
and federal funds sold. Asset and liability management is the process of
managing our balance sheet to achieve a mix of earning assets and liabilities
that maximizes profitability, while providing adequate liquidity.
18
MERCANTILE BANK CORPORATION
Our liquidity strategy is to fund loan growth with deposits and repurchase
agreements and to maintain an adequate level of short- and medium-term
investments to meet typical daily loan and deposit activity. Although deposit
and repurchase agreement growth from depositors located in our market area have
generally consistently increased, this growth has not been sufficient to meet
our substantial loan growth and provide monies for additional investing
activities. To assist in providing the additional needed funds, we have
regularly obtained monies from wholesale funding sources. Wholesale funds,
comprised primarily of certificates of deposit from customers outside of our
market area and advances from the FHLBI, totaled $792.9 million, or 64.1% of
combined deposits and borrowed funds as of June 30, 2004. As of December 31,
2003, wholesale funds totaled $681.6 million, or 63.9% of combined deposits and
borrowed funds. Reliance on wholesale funds is expected to continue due to our
anticipated future asset growth.
As a member of the FHLBI, our bank has access to the FHLBI's borrowing programs.
At June 30, 2004, advances from the FHLBI totaled $120.0 million, up from the
$90.0 million outstanding at December 31, 2003. Based on available collateral at
June 30, 2004, our bank could borrow an additional $54.0 million.
Our bank has the ability to borrow money on a daily basis through correspondent
banks via established unsecured federal funds purchased lines, totaling $50.0
million as of June 30, 2004. The average balance of federal funds purchased
during the first six months of 2004 equaled $6.0 million, compared to a $5.7
million average federal funds sold position during the same time period.
In addition to typical loan funding and deposit flow, we must maintain liquidity
to meet the demands of certain unfunded loan commitments and standby letters of
credit. As of June 30, 2004, our bank had a total of $283.8 million in unfunded
loan commitments and $57.1 million in unfunded standby letters of credit. Of the
total unfunded loan commitments, $236.5 million were commitments available as
lines of credit to be drawn at any time as customers' cash needs vary, and $47.3
million were for loan commitments expected to close and become funded within the
next three to six months. We monitor fluctuations in loan balances and
commitment levels, and include such data in managing our overall liquidity.
CAPITAL RESOURCES
Shareholders' equity is a noninterest-bearing source of funds that provides
support for asset growth. Shareholders' equity increased by $4.1 million during
the first six months of 2004, from $130.2 million on December 31, 2003, to
$134.3 million at June 30, 2004. The increase is primarily attributable to net
income of $6.1 million recorded during the first six months of 2004.
Shareholders' equity was negatively impacted during the first six months of 2004
by the payment of cash dividends totaling $1.3 million and a $1.0 million
mark-to-market adjustment for available for sale securities as defined in SFAS
No. 115. Shareholders' equity also increased $0.2 million from the issuance of
29,802 new shares of common stock resulting from our dividend reinvestment plan,
employee stock purchase plan and stock option exercises.
We are subject to regulatory capital requirements primarily administered by
federal bank regulatory agencies. Failure to meet the various capital
requirements can initiate regulatory action that could have a direct material
effect on the financial statements. The capital ratios of the company and our
bank as of June 30, 2004 and December 31, 2003 are disclosed under Note 9 of the
Notes to Consolidated Financial Statements.
19
MERCANTILE BANK CORPORATION
Our and our bank's ability to pay cash and stock dividends is subject to
limitations under various laws and regulations and to prudent and sound banking
practices. We declared a 5% stock dividend on April 7, 2004, that was
distributed on May 3, 2004 to record holders as of April 16, 2004. We paid a
$0.09 per share cash dividend on our common stock on March 10, 2004 and June 10,
2004. On July 7, 2004, we declared a $0.09 per share cash dividend payable on
September 10, 2004, to record holders as of August 10, 2004.
RESULTS OF OPERATIONS
Net income for the second quarter of 2004 was $3.1 million ($0.44 per basic
share and $0.43 per diluted share), which represents a 23.9% increase over net
income of $2.5 million ($0.45 per basic share and $0.44 per diluted share)
recorded during the second quarter of 2003. Net income for the first six months
of 2004 was $6.1 million ($0.85 per basic share and $0.84 per diluted share),
which represents a 28.2% increase over net income of $4.8 million ($0.84 per
basic share and $0.82 per diluted share) recorded during the first six months of
2003. Per share amounts reflect the dilutive impact of the common stock sale
completed during the latter part of 2003, with average shares outstanding up
25.7% in the second quarter of 2004 and year-to-date 2004 when compared to the
same time periods in 2003. The improvement in net income during both time
periods is primarily due to an increase in net interest income and greater
operating efficiency.
Interest income during the second quarter of 2004 was $16.1 million, an increase
of 20.1% over the $13.4 million earned during the second quarter of 2003.
Interest income during the first six months of 2004 was $31.5 million, an
increase of 20.6% over the $26.1 million earned during the first six months of
2003. The growth in interest income during both time periods is primarily
attributable to an increase in earning assets, which more than offset the
negative impact of a declining interest rate environment. During the second
quarter of 2004 earning assets averaged $1,269.3 million, $315.4 million higher
than average earning assets of $953.9 million during the second quarter of 2003.
Average loans were up $302.4 million and securities increased $17.2 million.
During the first six months of 2004, earning assets averaged $1,233.1 million,
$309.7 million higher than average earning assets of $923.4 million during the
same time period in 2003. Average loans were up $291.7 million and securities
increased $18.4 million. Negatively impacting the growth in interest income was
the decline in yield on earning assets. During the second quarter of 2004 and
2003, earning assets had a weighted average yield (tax equivalent-adjusted
basis) of 5.17% and 5.73%, respectively. During the first six months of 2004 and
2003 earning assets had a weighted average yield of 5.21% and 5.86%,
respectively. The decrease in weighted average yields during both time periods
is primarily due to the decline in market interest rates.
Interest expense during the second quarter of 2004 was $6.1 million, an increase
of 3.3% over the $5.9 million expensed during the second quarter of 2003.
Interest expense during the first six months of 2004 was $12.0 million, an
increase of 1.4% over the $11.8 million expensed during the first six months of
2003. The relatively small increase in interest expense is primarily
attributable to the decline in the cost of funds, which offset a vast majority
of the impact of increased funding liabilities necessitated by the growth in
assets. During the second quarter of 2004, interest-bearing liabilities averaged
$1,104.1 million, $248.8 million higher than average interest-bearing
liabilities of $855.3 million during the second quarter of 2003.
Interest-bearing deposits were up $166.4 million and FHLBI advances increased
$72.5 million. During the first six months of 2004, interest-bearing liabilities
averaged $1,073.7 million, $247.2 million higher than average interest-bearing
liabilities of $826.5 million during the same time period in 2003.
Interest-bearing deposits were up $161.3 million and FHLBI advances increased
$78.5 million. During the second quarter of 2004 and 2003, interest-bearing
liabilities had a weighted average rate of 2.23% and 2.78%, respectively. During
the first six months of 2004 and 2003, interest-bearing liabilities had a
weighted average rate of 2.25% and 2.88%, respectively. The decrease in the
weighted average cost of interest-bearing liabilities during both time periods
is primarily due to the decline in market interest rates.
20
MERCANTILE BANK CORPORATION
Net interest income during the second quarter of 2004 was $10.0 million, an
increase of 33.4% over the $7.5 million earned during the second quarter of
2003. Net interest income during the first six months of 2004 was $19.5 million,
an increase of 36.5% over the $14.3 million earned during the same time period
in 2003. The increase in net interest income is primarily due to the growth in
earning assets, combined with a steady to slightly improving net interest
margin. The net interest margin during the second quarter of 2004 was 3.24%,
unchanged from the level during the second quarter of 2003. During the first six
months of 2004 the net interest margin was 3.25%, compared to 3.21% during the
same time period in 2003.
The following table sets forth certain information relating to our consolidated
average interest earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the second
quarter of 2004 and 2003. Such yields and costs are derived by dividing income
or expense by the average daily balance of assets or liabilities, respectively,
for the period presented. Tax-exempt securities interest income and yield have
been computed on a tax equivalent basis using a marginal tax rate of 35%.
Securities interest income was increased by $234,000 and $193,000 in the second
quarter of 2004 and 2003, respectively, for this adjustment.
Quarters ended June 30,
-----------------------
2 0 0 4 2 0 0 3
------- -------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------- ------------- ----------- -------------- ------------- ------
(dollars in thousands)
ASSETS
Loans and leases $ 1,144,758 $ 14,722 5.16% $ 842,370 $ 12,223 5.82%
Securities 120,632 1,634 5.42 103,480 1,379 5.36
Federal funds sold 3,282 8 0.94 7,796 23 1.20
Short term investments 627 0 0.30 205 1 0.75
------------- ------------- ------------- -------------
Total interest-earning
assets 1,269,299 16,364 5.17 953,851 13,626 5.73
Allowance for loan losses (15,787) (11,845)
Other assets 76,995 60,708
------------- -------------
Total assets $ 1,330,507 $ 1,002,714
============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits $ 918,006 $ 4,929 2.15% $ 751,592 $ 5,165 2.76%
Short-term borrowings 55,142 186 1.35 45,774 173 1.52
FHLB advances 113,077 597 2.08 40,604 183 1.78
Long-term borrowings 17,878 418 9.35 17,365 413 9.51
------------- ------------- ------------- -------------
Total interest-bearing
liabilities 1,104,103 6,130 2.23 855,335 5,934 2.78
Noninterest-bearing
deposits 86,645 58,394
Other liabilities 6,548 6,579
Shareholders' equity 133,211 82,406
------------- -------------
Total liabilities and
shareholders' equity $ 1,330,507 $ 1,002,714
============= ------------- ============= -------------
Net interest income $ 10,234 $ 7,692
============= =============
Net interest rate spread 2.94% 2.95%
======== ======
Net interest rate spread
on average assets 3.08% 3.08%
======== ======
Net interest margin on
earning assets 3.24% 3.24%
======== ======
21
MERCANTILE BANK CORPORATION
Provisions to the allowance for loan and lease losses during the second quarter
of 2004 were $1.2 million, compared to the $0.8 million that was expensed during
the second quarter of 2003. Provisions to the allowance for loan and lease
losses during the first six months of 2004 were $2.5 million, compared to the
$1.5 million that was expensed during the same time period in 2003. The increase
during both time periods primarily reflects the higher volume of loan and lease
growth and net loan and lease charge-offs. Loan and lease growth during the
second quarter of 2004 was $74.2 million, compared to loan and lease growth of
$53.5 million during the second quarter of 2003. Loan and lease growth during
the first six months of 2004 was $149.4 million, compared to loan and lease
growth of $94.4 million during the same time period in 2003. Net loan and lease
charge-offs of $255,000 were recorded during the second quarter of 2004,
compared to net loan and lease charge-offs of $93,000 during the second quarter
of 2003. During the first six months of 2004 net loan and lease charge-offs
totaled $541,000, compared to net loan and lease charge-offs of $202,000 during
the same time period in 2003. The allowance for loan and lease losses as a
percentage of total loans outstanding as of June 30, 2004 was 1.38%, compared to
1.40% at June 30, 2003.
In each accounting period, the allowance for loan and lease losses is adjusted
to the amount believed necessary to maintain the allowance for loan and lease
losses at adequate levels. Through the loan review and credit departments, we
attempt to allocate specific portions of the allowance for loan and lease losses
based on specifically identifiable problem loans and leases. The evaluation of
the allowance for loan and lease losses is further based on, although not
limited to, consideration of the internally prepared Allowance Analysis,
composition of the loan and lease portfolio, third party analysis of the loan
administration processes and loan portfolio and general economic conditions. In
addition, the rapid growth of the loan and lease portfolio is taken into
account.
The Allowance Analysis, used since the inception of our bank and completed
monthly, applies reserve allocation factors to outstanding loan and lease
balances to calculate an overall allowance dollar amount. For commercial loans
and leases, which continue to comprise a vast majority of our loan and lease
portfolio, reserve allocation factors are based upon the loan ratings as
determined by our comprehensive loan rating paradigm that is administered by our
loan review function. For retail loans, reserve allocation factors are based
upon the type of credit. The reserve allocation factors are based on the
experience of senior management making similar loans in the same community over
the past 15 years. The Allowance Analysis is reviewed regularly by senior
management and the Board of Directors and is adjusted periodically based upon
identifiable trends and experience.
22
MERCANTILE BANK CORPORATION
Noninterest income during the second quarter of 2004 was $1.0 million, compared
to the $1.2 million earned during the second quarter of 2003. Noninterest income
during the first six months of 2004 was $2.0 million, compared to the $2.2
million earned during the same time period in 2003. The declines during both
time periods primarily results from a lower level of income from mortgage
banking activities and a decline in gains on the sales of securities, which was
only partially offset by increased fee income on other products and services.
Primarily reflecting the opening of new accounts and adjustments in our deposit
fee structure, service charge income on deposits and repurchase agreements
increased $32,000 during the second quarter of 2004 when compared to the second
quarter of 2003, and were up $62,000 during the first six months of 2004 when
compared to the same time period in 2003. Primarily reflecting an accounting
change in recognizing fee income and an increase in the dollar volume of
commercial letters of credit outstanding, commercial letter of credit fees
increased $70,000 during the second quarter of 2004 when compared to the second
quarter of 2003, and were up $137,000 during the first six months of 2004 when
compared to the same time period in 2003. Primarily reflecting an increased
interest rate environment and resulting decrease in residential mortgage loan
refinancings, residential mortgage loan fees decreased $208,000 during the
second quarter of 2004 when compared to the second quarter of 2003, and
decreased $353,000 during the first six months of 2004 when compared to the same
time period in 2003. There were no securities gains during the second quarter of
2004 compared to securities gains of $212,000 recorded during the second quarter
of 2003, and totaled $78,000 during the first six months of 2004 compared to
$212,000 during the same time period in 2003.
Noninterest expense during the second quarter of 2004 was $5.4 million, compared
to the $4.4 million expensed during the second quarter of 2003. Noninterest
expense during the first six months of 2004 was $10.6 million, compared to the
$8.4 million expensed during the same time period in 2003. Employee salary and
benefit expenses were $0.8 million higher during the second quarter of 2004 than
the level expensed during the second quarter of 2003, and were $1.5 million
higher during the first six months of 2004 than the level expensed during the
first six months of 2003. The increases during both time periods primarily
resulted from the hiring of additional staff and merit annual pay increases. The
level of full-time equivalent employees increased from 147 at June 30, 2003 to
183 as of June 30, 2004. Other overhead costs, including occupancy and fixed
asset costs, increased $288,000 in the second quarter of 2004 over the level
expensed in the second quarter of 2003, and increased $628,000 during the first
six months of 2004 over the level expensed during the first six months of 2003,
primarily reflecting the additional expenses required to administer our
significantly increased asset base and staff.
Monitoring and controlling noninterest costs, while at the same time providing
high quality service to customers, is a key component to our business strategy.
While the dollar volume of noninterest costs has increased, the rate of growth
has been lower than the rate of increase in net interest income and noninterest
income. Noninterest expenses increased by $1.0 million during the second quarter
of 2004 over the amount expensed during the second quarter of 2003, and
increased by $2.2 million during the first six months of 2004 over the amount
expensed during the first six months of 2003. However, net revenues (net
interest income plus noninterest income) increased at a substantially higher
level of $2.3 million and $5.0 million during the same time periods,
respectively.
Federal income tax expense was $1.2 million and $2.4 million during the second
quarter and first six months of 2004, respectively. Federal income tax expense
was $1.0 million and $1.9 million during the second quarter and first six months
of 2003, respectively. The increases during both time periods primarily results
from the increase in net income before federal income tax.
23
MERCANTILE BANK CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is interest rate risk and, to a lesser extent,
liquidity risk. All of our transactions are denominated in U.S. dollars with no
specific foreign exchange exposure. We have only limited agricultural-related
loan assets and therefore have no significant exposure to changes in commodity
prices. Any impact that changes in foreign exchange rates and commodity prices
would have on interest rates are assumed to be insignificant. Interest rate risk
is the exposure of our financial condition to adverse movements in interest
rates. We derive our income primarily from the excess of interest collected on
our interest-earning assets over the interest paid on our interest-bearing
liabilities. The rates of interest we earn on our assets and owe on our
liabilities generally are established contractually for a period of time. Since
market interest rates change over time, we are exposed to lower profitability if
we cannot adapt to interest rate changes. Accepting interest rate risk can be an
important source of profitability and shareholder value; however, excessive
levels of interest rate risk could pose a significant threat to our earnings and
capital base. Accordingly, effective risk management that maintains interest
rate risk at prudent levels is essential to our safety and soundness.
Evaluating the exposure to changes in interest rates includes assessing both the
adequacy of the process used to control interest rate risk and the quantitative
level of exposure. Our interest rate risk management process seeks to ensure
that appropriate policies, procedures, management information systems and
internal controls are in place to maintain interest rate risk at prudent levels
with consistency and continuity. In evaluating the quantitative level of
interest rate risk we assess the existing and potential future effects of
changes in interest rates on our financial condition, including capital
adequacy, earnings, liquidity and asset quality.
We use two interest rate risk measurement techniques. The first, which is
commonly referred to as GAP analysis, measures the difference between the dollar
amounts of interest sensitive assets and liabilities that will be refinanced or
repriced during a given time period. A significant repricing gap could result in
a negative impact to our net interest margin during periods of changing market
interest rates. The following table depicts our GAP position as of June 30, 2004
(dollars in thousands):
24
MERCANTILE BANK CORPORATION
Within Three to One to After
Three Twelve Five Five
Months Months Years Years Total
------ ------ ----- ----- -----
Assets:
Commercial loans and leases (1) $ 501,036 $ 32,322 $ 488,306 $ 50,939 $ 1,072,603
Residential real estate loans 51,968 3,775 37,199 14,661 107,603
Consumer loans 1,164 559 3,306 128 5,157
Investment securities (2) 6,817 1,271 19,507 97,266 124,861
Short-term investments 967 967
Allowance for loan and leases losses (16,312) (16,312)
Other assets 83,747 83,747
------------- ------------- ------------- ------------- -------------
Total assets 561,952 37,927 548,318 230,429 1,378,626
Liabilities:
Interest-bearing checking 30,411 30,411
Savings 129,233 129,233
Money market accounts 8,254 8,254
Time deposits < $100,000 38,750 40,286 30,460 109,496
Time deposits $100,000 and over 135,335 327,378 191,521 654,234
Short-term borrowings 53,960 53,960
FHLB advances 20,000 45,000 55,000 120,000
Long-term borrowings 1,414 16,495 17,909
Noninterest-bearing checking 114,441 114,441
Other liabilities 6,416 6,416
------------- ------------- ------------- ------------- -------------
Total liabilities 417,357 412,664 276,981 137,352 1,244,354
Shareholders' equity 134,272 134,272
------------- ------------- ------------- ------------- -------------
Total sources of funds 417,357 412,664 276,981 271,624 1,378,626
------------- ------------- ------------- ------------- -------------
Net asset (liability) GAP $ 144,595 $ (374,737) $ 271,337 $ (41,195)
============= ============= ============= =============
Cumulative GAP $ 144,595 $ (230,142) $ 41,195
============= ============= =============
Percent of cumulative GAP to
total assets 10.5% (16.7)% 3.0%
============= ============= =============
(1) Floating rate loans that are currently at interest rate floors are treated
as fixed rate loans and are reflected using maturity date and not next
repricing date.
(2) Mortgage-backed securities are categorized by expected final maturities
based upon prepayment trends as of June 30, 2004
The second interest rate risk measurement we use is commonly referred to as net
interest income simulation analysis. We believe that this methodology provides a
more accurate measurement of interest rate risk than the GAP analysis, and
therefore, serves as our primary interest rate risk measurement technique. The
simulation model assesses the direction and magnitude of variations in net
interest income resulting from potential changes in market interest rates. Key
assumptions in the model include prepayment speeds on various loan and
investment assets; cash flows and maturities of interest-sensitive assets and
liabilities; and changes in market conditions impacting loan and deposit volume
and pricing. These assumptions are inherently uncertain, subject to fluctuation
and revision in a dynamic environment; therefore, the model cannot precisely
estimate net interest income or exactly predict the impact of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to timing, magnitude, and frequency of interest rate changes and
changes in market conditions and the company's strategies, among other factors.
25
MERCANTILE BANK CORPORATION
We conducted multiple simulations as of June 30, 2004, whereby it was assumed
that a simultaneous, instant and sustained change in market interest rates
occurred. The following table reflects the suggested impact on our net interest
income over the next twelve months, which is well within our policy parameters
established to manage and monitor interest rate risk.
Dollar Change In Percent Change In
Interest Rate Scenario Net Interest Income Net Interest Income
---------------------- ------------------- -------------------
Interest rates down 200 basis points $ (2,621,000) (6.2)%
Interest rates down 100 basis points (1,513,000) (3.6)
No change in interest rates (791,000) (1.9)
Interest rates up 100 basis points 323,000 0.8
Interest rates up 200 basis points 1,445,000 3.4
The results detailed above have been influenced by the basis risk contained
within our earning assets and interest-bearing liabilities. Interest rates on
our floating rate loans, comprising approximately 67% of total assets as of June
30, 2004, are tied to the prime rate. Interest rates on our wholesale funds, and
to a lesser degree on our local interest-bearing deposits, closely mirror U.S.
Treasury and Libor interest rates. During the second quarter of 2004, U.S.
Treasury and Libor interest rates increased, reflecting the interest rate
market's expectations that the Federal Reserve was set to begin increasing short
term interest rates. For example, although as of June 30, 2004, the Federal
Reserve had not yet begun to increase the federal funds rate, the interest rate
on one year brokered CDs and FHLB bullet advances had increased by about 75
basis points during the second quarter of 2004. In conducting the net interest
income simulation we used brokered CD and FHLB bullet advance rates in effect as
of June 30, 2004. Therefore, it is likely that future net interest income would
be higher than what is detailed above.
In addition to changes in interest rates, the level of future net interest
income is also dependent on a number of other variables, including: the growth,
composition and absolute levels of loans, deposits, and other earning assets and
interest-bearing liabilities; economic and competitive conditions; potential
changes in lending, investing and deposit gathering strategies; client
preferences; and other factors.
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2004, an evaluation was performed under the supervision of and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, our
management, including our Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of June
30, 2004.
26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various legal proceedings that are
incidental to our business. In our opinion, we are not a party to any current
legal proceedings that are material to our financial condition, either
individually or in the aggregate.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
On May 7, 2004, we issued 2,650 shares of our common stock to one of our
employees upon their exercise of employee stock options issued under our 1997
Employee Stock Option Plan. We received a weighted average exercise price of
$10.695 per share aggregating $28,341.75. The exercise price for these shares
was substantially paid by the employee delivering to us common stock of the
company that he already owned having an aggregate value of $28,310.98, with the
difference paid in cash. The shares issued under the 1997 Employee Stock Option
Plan were issued in reliance on an exemption from registration under the
Securities Act of 1933 based on Section 4(2) of that Act, and Regulation D
issued under that Act.
Issuer Purchases of Equity Securities
(c) Total Number of
(a) Total Shares Purchased as (d) Maximum Number of
Number of (b) Average Part of Publicly Shares that May Yet Be
Shares Price Paid Announced Plans or Purchased Under the
Period Purchased Per Share Programs Plans or Programs
------ --------- --------- -------- -----------------
April 1 - 30 909 $ 36.475 0 0
May 1 - 31 818 34.610 0 0
June 1 - 30 0 N/A 0 0
----- ------ - -
Total 1,727 35.592 0 0
----- ------ - -
The shares shown in column (a) above as having been purchased were acquired from
three of our employees when they used shares of common stock that they already
owned to pay part of the exercise price when exercising stock options issued
under our employee stock option plans.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At our Annual Meeting held on April 22, 2004, our shareholders voted to elect
five directors, Edward J. Clark, C. John Gill, Gerald R. Johnson Jr., Calvin D.
Murdock and Donald Williams Sr., each for a three year term expiring at the
Annual Meeting of the shareholders of the company in 2007. The results of the
election were as follows:
Votes Votes Votes Broker
Nominee For Against Withheld Non-Votes
------- --- ------- -------- ---------
Edward J. Clark 6,044,123 0 59,852 0
C. John Gill 5,888,038 0 215,937 0
Gerald R. Johnson, Jr. 5,992,592 0 111,383 0
Calvin D. Murdock 6,039,726 0 64,249 0
Donald Williams, Sr. 6,025,623 0 78,352 0
27
The terms of office of the following directors (who were not up for election)
continued after the Annual Meeting: Betty S. Burton, David M. Cassard, Peter A.
Cordes, Doyle A. Hayes, David M. Hecht, Susan K. Jones, Lawrence W. Larsen,
Michael H. Price and Dale J. Visser.
At our Annual Meeting held on April 22, 2004, our shareholders voted to amend
the Articles of Incorporation of the company to increase the authorized common
stock of the company from 9,000,000 shares to 20,000,000 shares. The results of
the vote were as follows:
Votes Votes Votes Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
5,320,908 762,550 20,516 0
At our Annual Meeting held on April 22, 2004, our shareholders voted to approve
the 2004 Employee Stock Option Plan (the "Plan"). The plan provides for the
grant of options to acquire shares of our common stock, not to exceed 250,000
shares, to officers and other employees of the company and its subsidiaries. The
results of the vote were as follows:
Votes Votes Votes Broker
For Against Abstained Non-Votes
--- ------- --------- ---------
4,340,581 277,320 88,268 1,397,896
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. EXHIBIT DESCRIPTION
----------- -------------------
3.1 Articles of Incorporation
3.2 Our Amended and Restated Bylaws dated as of January 16, 2003
are incorporated by reference to Exhibit 3.2 of our
Registration Statement on Form S-3 (Commission File No.
333-103376) that became effective on February 21, 2003
11 Statement re Computation of Per Share Earnings
31 Rule 13a-14(a) Certifications
32.1 Section 1350 Chief Executive Officer Certification
32.2 Section 1350 Chief Financial Officer Certification
28
(b) Reports of Form 8-K
During the second quarter of 2004, the Company furnished to the Securities
and Exchange Commission the following report on Form 8-K:
i) Dated April 8, 2004, pertaining to the Company's press release
issued on April 8, 2004 reporting financial results and
earnings for its first quarter of 2004
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 6, 2004.
MERCANTILE BANK CORPORATION
By: /s/ Gerald R. Johnson, Jr.
----------------------------------
Gerald R. Johnson, Jr.
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ Charles E. Christmas
----------------------------------
Charles E. Christmas
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
30
EXHIBIT INDEX
Exhibit No. EXHIBIT DESCRIPTION
- ----------- -------------------
3.1 Articles of Incorporation
3.2 Our Amended and Restated Bylaws dated as of January 16, 2003
are incorporated by reference to Exhibit 3.2 of our
Registration Statement on Form S-3 (Commission File No.
333-103376) that became effective on February 21, 2003
11 Statement re Computation of Per Share Earnings
31 Rule 13a-14(a) Certifications
32.1 Section 1350 Chief Executive Officer Certification
32.2 Section 1350 Chief Financial Officer Certification
31