-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WdndsgGYXRarvUN2aVr8koC66Os7DvBTRmFNHnyy5+Evo7Q674nRviTcxFWd0VWk IP4IjSh1gW0b0ouqpQBGYQ== 0000950124-98-004411.txt : 19980814 0000950124-98-004411.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950124-98-004411 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANK CORP CENTRAL INDEX KEY: 0001042729 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 383360865 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 333-33081 FILM NUMBER: 98686301 BUSINESS ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 BUSINESS PHONE: 6166760201 MAIL ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 10QSB 1 FORM 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] 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. 333-33081 MERCANTILE BANK CORPORATION (Exact name of small business issuer as specified in its charter) Michigan 38-3360865 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 216 NORTH DIVISION AVENUE, GRAND RAPIDS, MICHIGAN 49503 (Address of principal executive offices) (616) 242-9000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- At June 30, 1998, there were 1,495,000 shares of Common Stock outstanding Transitional Small Business Disclosure Format: Yes No X --- --- 2 MERCANTILE BANK CORPORATION INDEX - --------------------------------------------------------------------------------
PART 1. Financial Information Page No. Item I. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997...................................... 3 Condensed Consolidated Statement of Income - Three and Six Months Ended June 30, 1998 (Unaudited)................................. 4 Condensed Consolidated Statement of Comprehensive Income - Three and Six Months Ended June 30, 1998 (Unaudited)................................. 5 Condensed Consolidated Statement of Changes in Shareholders Equity - June 30, 1998 (Unaudited) and December 31, 1997...................................... 6 Condensed Consolidated Statement of Cash Flows - Three and Six Months Ended June 30, 1998 (Unaudited)................................. 7 Notes to Condensed Consolidated Financial Statements (Unaudited)....................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 14 PART II. Other Information Item 1. Legal Proceedings............................................................. 19 Item 2. Changes in Securities and Use of Proceeds..................................... 19 Item 3. Defaults upon Senior Securities............................................... 19 Item 4. Submission of Matters to a Vote of Security Stockholders...................... 19 Item 5. Other Information............................................................. 19 Item 6. Exhibits and Reports on Form 8-K.............................................. 19 Signatures............................................................................. 21
2 3 MERCANTILE BANK CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MERCANTILE BANK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
June 30, December 31, 1998 1997 -------- ----------- (Unaudited) ASSETS Cash and due from banks $ 4,313,412 $ 153,300 Short-term investments 500,000 3,250,000 Federal funds sold 5,900,000 3,700,000 --------------- --------------- Total cash and cash equivalents 10,713,412 7,103,300 Securities available for sale 14,494,951 2,997,500 Total loans 113,406,408 12,886,763 Allowance for loan losses (1,665,100) (193,300) --------------- --------------- Total loans, net 111,741,308 12,693,463 Premises and equipment - net 1,388,805 953,982 Organizational costs - net 72,406 74,871 Accrued interest receivable 721,050 52,811 Other assets 460,645 233,258 --------------- --------------- Total assets $ 139,592,577 $ 24,109,185 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 15,037,312 $ 7,207,482 Interest-bearing 101,653,874 2,480,782 --------------- --------------- Total 116,691,186 9,688,264 Securities sold under agreements to repurchase 10,555,295 655,447 Accrued expenses and other liabilities 307,768 292,204 --------------- --------------- Total liabilities 127,554,249 10,635,915 Shareholders' equity Preferred stock, no par value; 1,000,000 shares authorized, none issued Common stock, no par value: 9,000,000 shares, authorized; 1,495,000 shares outstanding at June 30, 1998 and December 31, 1997 13,880,972 13,880,972 Retained earnings (deficit) (1,840,272) (404,071) Net unrealized loss on securities available for sale (2,372) (3,631) --------------- --------------- Total shareholders' equity 12,038,328 13,473,270 --------------- --------------- Total liabilities and shareholders' equity $ 139,592,577 $ 24,109,185 =============== ===============
3 4 MERCANTILE BANK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) - --------------------------------------------------------------------------------
Three Months Six Months Ended Ended June 30, 1998 June 30, 1998 ------------- ------------- Interest income Loans, including fees $ 1,952,640 $ 3,000,610 Investment securities 163,441 256,363 Federal funds sold 83,446 116,791 Interest-bearing deposits 5,476 9,914 -------------- -------------- Total interest income 2,204,973 3,383,678 Interest expense Deposits 1,195,917 1,746,196 Other 103,597 132,259 -------------- -------------- Total interest expense 1,299,514 1,878,455 -------------- -------------- NET INTEREST INCOME 905,459 1,505,223 Provision for loan losses 473,000 1,471,800 -------------- -------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 432,459 33,423 Noninterest income Other income 72,823 87,263 -------------- -------------- Total noninterest income 72,823 87,263 Noninterest expense Salaries and benefits 416,587 818,267 Occupancy 70,551 138,925 Furniture and equipment 32,565 71,741 Other expense 280,103 527,954 -------------- -------------- Total noninterest expenses 799,906 1,556,887 -------------- -------------- LOSS BEFORE FEDERAL INCOME TAX (294,624) (1,436,201) Federal income tax expense 0 0 -------------- -------------- NET LOSS $ (294,624) $ (1,436,201) ============== ============== Basic and diluted loss per share $ (0.20) $ (0.96) ========= ========= Average shares outstanding 1,495,000 1,495,000 ============== ==============
4 5 MERCANTILE BANK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) - --------------------------------------------------------------------------------
Three Months Six Months Ended Ended June 30, 1998 June 30, 1998 ------------- ------------- NET LOSS $ (294,624) $ (1,436,201) Other comprehensive income (loss), net of tax Change in unrealized gains (losses) on securities (1,525) 1,259 -------------- -------------- COMPREHENSIVE LOSS $ (296,149) $ (1,434,942) ============== ==============
5 6 MERCANTILE BANK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - --------------------------------------------------------------------------------
Net Unrealized Loss on Securities Total Common Retained Available Shareholders' Stock Earnings for Sale Equity ------ -------- -------------- ------------- BALANCE, JANUARY 1, 1998 $ 13,880,972 $ (404,071) $ (3,631) $ 13,473,270 Net loss for the period from January 1, 1998 through June 30, 1998 (1,436,201) (1,436,201) Change in unrealized loss on securities available for sale, net of tax 1,259 1,259 -------------- ------------- ----------- ------------- BALANCE, JUNE 30, 1998 $ 13,880,972 $ (1,840,272) $ (2,372) $ 12,038,328 ============== ============= =========== =============
6 7 MERCANTILE BANK CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------
Three Months Six Months Ended Ended June 30, 1998 June 30, 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (294,624) $ (1,436,201) Adjustments to reconcile net loss to net cash from operating activities Depreciation and amortization 68,299 111,105 Provision for loan losses 473,000 1,471,800 Net change in: Accrued interest receivable (239,284) (668,239) Other assets (29,582) (224,922) Accrued expenses and other liabilities 39,335 15,564 -------------- --------------- Net cash from operating activities 17,144 (730,893) CASH FLOWS FROM INVESTING ACTIVITIES Net change in loans (37,265,739) (100,519,645) Purchase of: Securities available for sale (10,032,245) (13,528,853) Premises and equipment, net (108,641) (513,267) Matured securities available for sale 2,000,000 2,000,000 -------------- --------------- Net cash used in investing activities (45,406,625) (112,561,765) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 41,306,855 107,002,922 Net increase in securities sold under agreements to repurchase 5,467,097 9,899,848 -------------- --------------- Net cash from financing activities 46,773,952 116,902,770 -------------- --------------- Net change in cash and cash equivalents 1,384,471 3,610,112 Cash and cash equivalents at beginning of period 9,328,941 7,103,300 -------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,713,412 $ 10,713,412 ============== =============== Supplemental disclosures of cash flow information Cash paid during the year for Interest $ 1,177,115 $ 1,616,566
7 8 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION: The unaudited financial statements for the three and six months ended June 30, 1998 include the consolidated results of operations of Mercantile Bank Corporation ("Corporation") and its wholly-owned subsidiary, Mercantile Bank of West Michigan ("Bank"). These consolidated financial statements have been prepared in accordance with the Instructions for Form 10-QSB and Item 310(b) of Regulation S-B and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Corporation's 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 period ended June 30, 1998 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 the Corporation's annual report on Form 10-KSB for the year ended December 31, 1997. 2. ALLOWANCE FOR LOAN LOSSES The following is a summary of the activity in the allowance for loan losses account for the six months ended June 30, 1998: Balance at January 1, 1998 $ 193,300 Provision for loan losses charged to operating expense 1,471,800 -------------- Balance at June 30, 1998 $ 1,665,100 ============== 3. LOANS Total loans at June 30, 1998 were $113.4 million compared to $12.9 million at December 31, 1997, an increase of $100.5 million or 780%. The components of the outstanding balances and percentage increase in loans from the end of 1997 to the end of the second quarter 1998 are as follows:
Percent June 30, 1998 December 31, 1997 Increase/ Balance % Balance % (Decrease) ------- --- ------- --- ---------- (in thousands) Consumer loans $ 960 0.8% $ 15 0.1% 6,300.0% Commercial, financial and other 35,598 31.4 7,433 57.7 378.9 Commercial real estate construction 4,328 3.8 --- --- NA Commercial real estate mortgages 65,787 58.1 5,421 42.1 1,113.5 Residential real estate mortgages 6,733 5.9 18 0.1 37,311.1 -------- ----- -------- ----- -------- $113,406 100.0% $ 12,887 100.0% 780.0% ======== ===== ======== ===== ========
- -------------------------------------------------------------------------------- 8 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, 1998 1997 ------- ----------- Leasehold improvements $ 750,588 $ 545,401 Furniture and equipment 716,661 408,581 -------------- --------------- 1,467,249 953,982 Less accumulated depreciation (78,444) --- -------------- --------------- $ 1,388,805 $ 953,982 ============== ===============
Depreciation expense for the second quarter 1998 amounted to $36,547. 5. DEPOSITS Total deposits at June 30, 1998 were $116.7 million compared to $9.7 million at December 31, 1997, an increase of $107.0 million or 1,104%. The components of the outstanding balances and percentage increase in deposits from the end of 1997 to the end of the second quarter 1998 are as follows:
Percent June 30, 1998 December 31, 1997 Increase/ Balance % Balance % (Decrease) ------- --- ------- --- ---------- (in thousands) Noninterest-bearing Demand $ 15,037 12.9% $ 7,208 74.4% 108.6% Interest-bearing Checking 4,273 3.7 213 2.2 1,906.1 Money market 1,372 1.2 --- --- NA Savings 20,552 17.6 2,089 21.6 883.8 Time, under $100,000 47,436 40.6 178 1.8 26,549.4 Time, $100,000 and over 28,021 24.0 --- --- NA ----------- -------- ----------- ------- ---------- $ 116,691 100.0% $ 9,688 100.0% 1,104.5% =========== ======== =========== ======= ==========
- -------------------------------------------------------------------------------- 9 10 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 6. BORROWINGS Information relating to securities sold under agreements to repurchase follows:
June 30, December 31, 1998 1997 ------- ----------- Outstanding balance $ 10,555,295 $ 655,447 Average interest rate 4.70% 4.70% Average balance $ 5,233,576 $ 3,853 Average interest rate 4.70% 4.70% Maximum outstanding at any month end $ 10,555,295 $ 655,447
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 the 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. EMPLOYEE BENEFIT PLANS The Corporation established a 401(k) plan effective January 1, 1998, covering substantially all its employees. The Corporation's second quarter 1998 matching 401(k) contribution charged to expense was $11,396. The percent of the Corporation's matching contributions to the 401(k) is determined annually by the Board of Directors. - -------------------------------------------------------------------------------- 10 11 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 8. COMMITMENTS AND OFF-BALANCE-SHEET RISK Some financial instruments are used to meet financing needs and to reduce exposure to interest rate changes. These financial instruments include commitments to extend credit and standby letters of credit. These involve, to varying degrees, credit and interest-rate risk in excess of the amount reported in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment, and generally have fixed expiration dates. Standby letters of credit are conditional commitments to guarantee a customer's performance to a third party. Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit and standby letters of credit. Collateral or other security is normally not obtained for these financial instruments prior to their use, and many of the commitments are expected to expire without being used. A summary of the notional or contractual amounts of financial instruments with off-balance-sheet risk at June 30, 1998 and December 31, 1997 follows:
June 30, December 31, 1998 1997 ------- ----------- Commitments to make loans $ 1,100,237 $ 7,198,584 Commercial unused lines of credit 43,141,679 3,701,272 Standby letters of credit 2,690,233 --- Consumer unused lines of credit 4,718,589 64,356
Commitments to make loans generally have termination dates of one year or less and may require a fee. Since many of the above commitments expire without being used, the above amounts do not necessarily represent future cash commitments. No losses are anticipated as a result of these transactions. 9. REGULATORY MATTERS The Corporation and Bank 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 the financial statements. - -------------------------------------------------------------------------------- 11 12 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 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 adequately 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. The minimum requirements are:
Capital to Risk- Weighted Assets ---------------- Tier 1 Capital Total Tier 1 to Average Assets ----- ------ ----------------- Well capitalized 10% 6% 5% Adequately capitalized 8 4 4 Undercapitalized <8 <4 <4
Actual capital levels (in thousands) and minimum required levels for the Corporation and the Bank were:
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, 1998 Total capital (to risk weighted assets) Consolidated $ 13,551 11.2% $ 9,653 8.0% $ 12,066 10.0% Bank 12,979 10.8 9,639 8.0 12,049 10.0 Tier 1 capital (to risk weighted assets) Consolidated 12,041 10.0 4,833 4.0 7,249 6.0 Bank 11,471 9.5 4,826 4.0 7,239 6.0 Tier 1 capital (to average assets) Consolidated 12,041 10.6 4,566 4.0 5,708 5.0 Bank 11,471 10.1 4,565 4.0 5,707 5.0 December 31, 1997 Total capital (to risk weighted assets) Consolidated $ 13,595 78.1% $ 1,392 8.0% $ 1,740 10.0% Bank 13,056 75.6 1,382 8.0 1,728 10.0 Tier 1 capital (to risk weighted assets) Consolidated 13,402 77.0 696 4.0 1,044 6.0 Bank 12,863 74.5 691 4.0 1,037 6.0 Tier 1 capital (to average assets) Consolidated 13,402 69.7 769 4.0 961 5.0 Bank 12,863 69.3 743 4.0 928 5.0
- -------------------------------------------------------------------------------- 12 13 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- The Corporation and Bank were categorized as well capitalized at June 30, 1998 and year end 1997. 10. SUBSEQUENT EVENTS The Corporation completed a secondary public offering subsequent to June 30, 1998. The Corporation issued 977,500 shares of common stock in the public offering, resulting in net proceeds to the Corporation of approximately $14.3 million, subject to further adjustments based upon final actual expenses incurred. Management anticipates using these proceeds to support further growth of the organization. - -------------------------------------------------------------------------------- 13 14 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion compares the financial condition of the Corporation and its wholly owned subsidiary, the Bank; at June 30, 1998 to December 31, 1997, and the results of operations for the three and six months ended June 30, 1998. This discussion should be read in conjunction with the interim consolidated condensed financial statements and footnotes included herein. 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 the Corporation. 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. The Corporation undertakes 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 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 preceding forward-looking statement. During the second quarter of 1998, the assets of Mercantile Bank Corporation increased from $93.1 million on March 31, 1998, to $139.6 million on June 30, 1998. This represents a total increase in assets of $46.5 million. A $1.4 million increase in cash and cash equivalents; a $8.0 million increase in investment securities; and a $36.8 million increase in net loans primarily comprised this growth. The increase in assets was funded by $41.3 million growth in deposits, and an increase of $5.5 million in repurchase agreements, partially offset by a $0.3 million decrease in equity. The growth in deposits is the result of both core deposits and reliance on out-of-area CD's. While management expects continuing growth, it is anticipated to be at a slower rate. - -------------------------------------------------------------------------------- 14 15 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- The following table sets forth certain information relating to the Corporation's consolidated average interest earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the period indicated. 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. During the period presented, there were no nonaccrual loans.
Quarter ended June 30, 1998 Average Average Balance Interest Rate ------- -------- ------- (in thousands) ASSETS Federal funds sold and interest-bearing deposits with banks $ 6,754 $ 89 5.29% Investment securities - available for sale 12,055 163 5.42 Loans 88,696 1,953 8.83 ----------- ----------- -------- Subtotal interest-bearing assets 107,505 2,205 8.23 Other assets 6,655 ----------- Total assets $ 114,160 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $ 83,540 $ 1,196 5.74% Other borrowings 8,804 104 4.74 ----------- ----------- -------- Subtotal interest-bearing liabilities 92,344 1,300 5.65 Noninterest-bearing deposits 9,303 Other liabilities 301 Shareholders' equity 12,212 ----------- Total liabilities and shareholders' equity $ 114,160 =========== Net interest income $ 905 =========== Net interest rate spread 2.58% ======== Net interest margin on earning assets 3.37% ========
- -------------------------------------------------------------------------------- 15 16 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 1998, which are expected to mature or reprice in each of the time periods shown (in thousands):
Interest Rate Sensitivity Period Within Three to One to After Three Twelve Five Five Months Months Years Years Total ------ ------ ------ ----- ----- Earning assets Federal funds sold $ 5,900 $ --- $ --- $ --- $ 5,900 Interest-bearing deposits --- 500 --- --- 500 Securities available for sale 999 4,493 9,003 --- 14,495 Consumer loans 249 7 421 283 960 Commercial, financial and other 21,310 229 12,419 1,640 35,598 Commercial real estate construction 712 437 1,319 1,860 4,328 Commercial real estate mortgages 15,315 1,751 46,846 1,874 65,786 Residential real estate mortgages 1,979 949 3,390 416 6,734 ---------- ---------- ---------- --------- ---------- 46,464 8,366 73,398 6,073 134,301 Interest-bearing liabilities Interest-bearing checking $ 4,273 $ --- $ --- $ --- $ 4,273 Savings 20,552 --- --- --- 20,552 Money market 1,372 --- --- --- 1,372 Time deposits < $100,000 1,776 20,676 24,984 --- 47,436 Time deposits $100,000 and over 8,487 15,064 4,470 --- 28,021 Other borrowings 10,555 --- --- --- 10,555 ---------- ---------- ---------- --------- ---------- 47,015 35,740 29,454 --- 112,209 ---------- ---------- ---------- --------- ---------- Net asset (liability) gap $ (551) $ (27,374) $ 43,944 $ 6,073 $ 22,092 ========== ========== ========== ========= ========== Cumulative net asset (liability) gap $ (551) $ (27,925) $ 16,019 $ 22,092 ========== ========== ========== =========
At quarter-end, commercial loans approximated 93.2% of the total loan portfolio. The significant concentration in commercial loans and the rapid growth of this portion of our business is in keeping with our stated strategy of focusing a substantial amount of our efforts on "wholesale" banking. Corporate and business lending is an area of expertise for all of the Corporation's senior management team. Commercial loans are also the assets most efficiently originated and managed by the fewest number of staff, thus reducing overhead through necessitating fewer full-time equivalents (FTE's)/$million in assets. It is also the commercial sector of our business that generates the greatest amount of deposits, and it is virtually the only source of significant demand deposits. - -------------------------------------------------------------------------------- 16 17 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- Mortgage and consumer loans increased during the second quarter by $6.7 million and $0.9 million, respectively. As the extremely rapid growth of our commercial loan portfolio gradually slows, the retail portion of our loan assets is expected to increase as a percentage of total loans. However, our strategy for growth and profitability is expected to result in the commercial sector of our lending efforts and resultant assets continuing to be the dominant portfolio category. Total deposits were $116.7 million at June 30, 1998, compared to $9.7 million at prior year-end. Of this amount $15.0 million, or approximately 12.9%, were demand deposits. In addition, Business Investment Checking, our combined sweep account/repurchase agreement, increased from $0.7 million on December 31, 1997, to $10.6 million on June 30, 1998. Out-of-area deposits, consisting primarily of $99,000 certificates obtained from depositors located outside our market area and placed by deposit brokers for a fee, totaled $59.6 million, or approximately 47% of combined deposits and Business Investment Checking at quarter-end. The amount of new out-of-area deposits obtained during the second quarter totaled $18.5 million, a level considerably lower than the $41.1 million obtained during the first quarter. Our reliance on out-of-area deposits is expected to be ongoing due to our planned significant future growth; however, the downward trend in out-of-area deposit concentration levels reflected above should also continue as new business and retail relationships continue to be established and as existing customers fund deposit accounts/business investment checking accounts which have already been opened or as these customers require additional deposit products. The net operating loss for the second quarter was $294,624 ($0.20/share), which compares favorably to the first quarter net operating loss of $1,141,577 ($0.76/share). Growth in net interest income and a decline in loan loss provisions primarily contribute to the improved performance. Net interest income during the second quarter totaled $905,459, or $305,695 higher than the first quarter level. Provision for loan losses were $473,000 ($0.32/share) and $998,800 ($0.66/share) during the second and first quarter, respectively. Loan loss provisions are high due to the extremely rapid growth of the loan portfolio combined with management's decision to manage the portfolio utilizing a 1.5% allowance for loan and lease losses. Although the percentage loan loss reserve to total loans is high relative to the quality of the overall portfolio, company management feels it is prudent to operate with this level of reserves due to the newness of the organization and the significant number of credits at the legal lending limit of the Bank. Loan loss provisions are an immediate reduction to earnings; moreover, these provisions will continue to reduce earnings, although more moderately, as the anticipated rate of loan growth slows. Payroll and other non-interest operating expenses are expected to decline as a percentage of income as the Corporation grows. As a result, the efficiency ratio, at 0.98% during the first six months of 1998, should decrease as the Corporation more adequately absorbs current overhead costs and amortization of prior period organization and start-up costs. - -------------------------------------------------------------------------------- 17 18 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- Immediate and future plans for the remainder of 1998 include the continued growth of the recently implemented telephone banking product, as well as the introduction of PC banking to both our retail and commercial customers. It is management's opinion that the use of state-of-the-art technology will offset some of the potential advantages that establishing branch banking locations might provide. This is especially true if ATM kiosks are strategically located throughout our market area and used in connection with and as an adjunct to our technology. - -------------------------------------------------------------------------------- 18 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As a depository of funds, the Bank may occasionally be named as a defendant in lawsuits (such as garnishment proceedings) involving claims to the ownership of funds in particular accounts. Such litigation is incidental to the Bank's business. The Corporation's management is not aware of any pending litigation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At its Annual Meeting held on April 21, 1998, the Corporation's stockholders voted to elect four directors, 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 stockholders of the Corporation in 2001. The results of the election were as follows:
Votes Votes Votes Broker Nominee For Withheld Abstained Non-Votes ------- ----- -------- --------- --------- C. John Gill 1,435,102 5,500 --- --- Gerald R. Johnson, Jr. 1,434,702 5,900 --- --- Calvin D. Murdock 1,435,102 5,500 --- --- Donald Williams, Sr. 1,435,102 5,500 --- ---
The terms of office of the following directors (who were not up for election) continued after the Annual Meeting: Betty S. Burton, Peter A. Cordes, David M. Hecht, Susan K. Jones, Lawrence W. Larsen, Michael H. Price, Dale J, Visser, and Robert M. Wynalda. ITEM 5. OTHER INFORMATION. Not applicable. - -------------------------------------------------------------------------------- 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: EXHIBIT NO. EXHIBIT DESCRIPTION ---------- ------------------- 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's Registration Statement on Form SB-2 (Commission File no. 333-33081) that became effective on October 23, 1997 3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) that became effective on October 23, 1997 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule - -------------------------------------------------------------------------------- 20 21 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 1998. 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/ Michael H. Price --------------------------------------- Michael H. Price President and Chief Operating Officer By: /s/ Charles E. Christmas --------------------------------------- Charles E. Christmas Vice President of Finance, Treasurer and Compliance Officer (Principal Financial and Accounting Officer) - -------------------------------------------------------------------------------- 21 22 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION - ---------- ------------------- 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's Registration Statement on Form SB-2 (Commission File no. 333-33081) that became effective on October 23, 1997 3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) that became effective on October 23, 1997 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule - -------------------------------------------------------------------------------- 22 EX-11 2 EXHIBIT 11 - STATEMENT RE COMPUTATION 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS RETURN ON EQUITY AND ASSETS
12/31/97 TO ANNUALIZED 6/30/98 ---------- ------- Return on average total assets -3.30% -1.65% Return on average equity -22.91% -11.45% Dividend Payout Ratio NA NA Average Equity to Average Assets 14.42%
STATEMENT OF COMPUTER PER SHARE EARNINGS Net Loss $(1,436,201) Average Shares Outstanding 1,495,000 Basic and Diluted Loss Per Share $(0.96)
- -------------------------------------------------------------------------------- 23 EX-27 3 FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-1998 JUN-30-1998 4,313,412 500,000 5,900,000 0 0 14,494,951 14,494,951 113,406,408 (1,665,100) 139,592,577 116,691,186 10,555,295 307,768 0 0 0 13,880,972 (1,840,272) 139,592,577 3,000,610 256,363 126,705 3,383,678 1,746,196 132,259 1,505,223 1,471,800 0 1,556,887 (1,436,201) (1,436,201) 0 0 (1,436,201) (0.96) (0.96) 0 0 0 0 0 (193,300) 0 0 (1,665,100) 0 0 (1,665,100)
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