PART I. Financial Information Financial Statements Presents the unaudited condensed consolidated financial statements for the period ended March 31, 2019 Condensed Consolidated Balance Sheets Total assets grew to $3.55 billion, driven by increases in net loans and cash equivalents Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Total Assets | 3,551,754 | 3,363,907 | | Total cash and cash equivalents | 214,894 | 75,354 | | Loans, net | 2,776,504 | 2,730,705 | | Total Liabilities | 3,168,025 | 2,988,658 | | Total deposits | 2,610,974 | 2,463,708 | | Federal Home Loan Bank advances | 384,000 | 350,000 | | Total Shareholders' Equity | 383,729 | 375,249 | Condensed Consolidated Statements of Income Net income rose to $11.8 million, supported by higher net interest and noninterest income Condensed Consolidated Income Statement Highlights (Unaudited) | Account | Three Months Ended March 31, 2019 ($ thousands) | Three Months Ended March 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Net interest income | 30,645 | 30,199 | | Provision for loan losses | 850 | 0 | | Total noninterest income | 6,632 | 4,381 | | Total noninterest expenses | 21,830 | 21,147 | | Net income | 11,824 | 10,881 | | Diluted earnings per share | $0.72 | $0.66 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income increased significantly to $15.3 million due to gains on securities Condensed Consolidated Comprehensive Income (Unaudited) | Account | Three Months Ended March 31, 2019 ($ thousands) | Three Months Ended March 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Net income | 11,824 | 10,881 | | Other comprehensive income (loss), net of tax | 3,515 | (5,641) | | Comprehensive income | 15,339 | 5,240 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity grew to $383.7 million, driven by net income and unrealized gains - Key drivers of equity growth in Q1 2019 were $11.8 million in net income and a $3.5 million gain on securities20 - Growth was partially offset by $4.2 million in cash dividends and $3.6 million in share repurchases20 Condensed Consolidated Statements of Cash Flows A net cash increase of $139.5 million resulted from strong financing inflows offsetting investing outflows Net Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2019 ($ thousands) | Three Months Ended March 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Net cash from operating activities | 2,445 | 13,045 | | Net cash for investing activities | (44,284) | (2,456) | | Net cash from financing activities | 181,379 | 467 | | Net change in cash and cash equivalents | 139,540 | 11,056 | Notes to Condensed Consolidated Financial Statements Details the basis of presentation, significant accounting policies, and preparations for CECL adoption - Adopted ASU 2016-02, Leases, on January 1, 2019, recording a right-of-use asset and lease liability of approximately $1.3 million61 - The company is preparing for the adoption of the Current Expected Credit Loss (CECL) model, with an initial model expected to be operational in Q2 201962 Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2019 financial performance, highlighting asset growth and strong loan quality - Reported net income of $11.8 million ($0.72 per diluted share) for Q1 2019, an increase from $10.9 million in Q1 2018211 - Results were positively impacted by a $1.8 million one-time gain from a life insurance benefit and branch sale211 - Loan portfolio quality remains strong, with nonperforming loans at just 0.15% of total loans as of March 31, 2019212 Financial Condition Total assets reached $3.55 billion with strong credit quality and a growing commercial loan portfolio - Nonperforming assets decreased to $4.5 million, or 0.1% of total assets, at March 31, 2019223 - The allowance for loan losses stood at $23.1 million, representing 559% of nonperforming loans238 Loan Portfolio Composition (3/31/19) | Loan Category | Balance ($ thousands) | % of Total Loans | | :--- | :--- | :--- | | Commercial & Industrial | 839,207 | 30.0% | | Owner Occupied Commercial RE | 551,518 | 19.7% | | Non-Owner Occupied Commercial RE | 835,678 | 29.8% | | 1-4 Family Mortgages | 316,314 | 11.3% | | Other | 256,822 | 9.2% | | Total Loans | 2,799,639 | 100.0% | Liquidity Liquidity is maintained through diverse funding sources, with substantial available credit from FHLBI - Wholesale funds increased to $570 million as of March 31, 2019, from $474 million at year-end 2018252 - The company had an FHLBI borrowing line of about $827 million, with remaining availability of approximately $437 million253 - Total unfunded loan commitments and standby letters of credit amounted to approximately $1.04 billion256 Capital Resources The company remains 'well capitalized' with a total risk-based capital ratio of 12.4% - Shareholders' equity increased by $8.5 million during Q1 2019 to $384 million258 - During Q1 2019, the company repurchased 119,120 shares for $3.6 million under its authorized stock repurchase program259 - The bank's total risk-based capital ratio was 12.4%, with regulatory capital $77 million above the 'well capitalized' minimum261 Results of Operations Q1 2019 net income grew to $11.8 million despite a decline in net interest margin - The increase in interest expense was primarily due to a higher weighted average cost of interest-bearing liabilities, which rose to 1.47% from 0.94% YoY265 Q1 Performance Comparison (YoY) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Interest Income | $30.6M | $30.2M | | Net Interest Margin | 3.88% | 4.06% | | Provision for Loan Losses | $0.9M | $0.0M | | Noninterest Income | $6.6M | $4.4M | | Noninterest Expense | $21.8M | $21.1M | | Net Income | $11.8M | $10.9M | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed via NII simulation - The company's primary market risk exposure is interest rate risk, managed through GAP analysis and net interest income (NII) simulation275281 Net Interest Income Simulation (as of March 31, 2019) | Interest Rate Scenario (Gradual change over 12 months) | Percent Change in Net Interest Income | | :--- | :--- | | Interest rates up 300 basis points | +16.0% | | Interest rates up 200 basis points | +8.1% | | Interest rates up 100 basis points | +4.0% | | Interest rates down 100 basis points | -5.4% | | Interest rates down 200 basis points | -11.1% | Controls and Procedures Management concluded that disclosure controls and internal controls were effective as of Q1 2019 - Management concluded that disclosure controls and procedures were effective as of March 31, 2019286 - No material changes were made to internal control over financial reporting during the quarter ended March 31, 2019287 PART II. Other Information Legal Proceedings The company reports no material legal proceedings that would impact its financial condition - The company reports no material legal proceedings290 Risk Factors No material changes to risk factors were identified since the last annual report - No material changes to risk factors have occurred since the 2018 Form 10-K filing291 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 119,120 shares for $3.6 million in Q1 2019 under its buyback program - No unregistered sales of equity securities were made during Q1 2019292 Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining in Plan | | :--- | :--- | :--- | :--- | | Jan 1 - 31 | 119,120 | $30.23 | $5,962,000 | | Feb 1 - 28 | 0 | $0 | $5,962,000 | | Mar 1 - 31 | 0 | $0 | $5,962,000 | | Total | 119,120 | $30.23 | $5,962,000 | Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Exhibits filed include CEO and CFO certifications and financial statements formatted in XBRL298
Mercantile Bank (MBWM) - 2019 Q1 - Quarterly Report