Mercantile Bank (US:MBWM)2021-11-05 12:38Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Mercantile Bank Corporation, including Balance Sheets, Income, Comprehensive Income, Equity, and Cash Flow statements, with detailed accounting notes Consolidated Balance Sheets Total assets grew to $4.96 billion as of September 30, 2021, from $4.44 billion at year-end 2020, primarily funded by a significant increase in total deposits to $3.87 billion Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,964,412 | $4,437,344 | | Total cash and cash equivalents | $825,361 | $626,006 | | Securities available for sale | $559,564 | $387,347 | | Loans, net | $3,276,286 | $3,155,503 | | Total Liabilities | $4,512,134 | $3,995,790 | | Total deposits | $3,868,991 | $3,411,553 | | Total Shareholders' Equity | $452,278 | $441,554 | Consolidated Statements of Income Net income increased to $15.1 million in Q3 2021 and $47.4 million for the nine months ended September 30, 2021, driven by higher net interest income, increased noninterest income, and a negative loan loss provision Income Statement Highlights (Unaudited) | (In thousands, except per share data) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Interest Income | $91,528 | $90,397 | | Provision for loan losses | $(900) | $11,550 | | Total Noninterest Income | $43,587 | $30,839 | | Total Noninterest Expense | $77,519 | $72,579 | | Net Income | $47,382 | $30,056 | | Diluted Earnings Per Share | $2.95 | $1.85 | Consolidated Statements of Cash Flows Net cash from operating activities was $19.2 million for the nine months ended September 30, 2021, with a $199.4 million net increase in cash and cash equivalents driven by strong financing activities Cash Flow Summary (Unaudited) | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $19,169 | $16,306 | | Net cash for investing activities | $(316,436) | $(452,367) | | Net cash from financing activities | $496,622 | $756,921 | | Net change in cash and cash equivalents | $199,355 | $320,860 | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including COVID-19 impacts like PPP participation and CECL deferral, providing breakdowns of securities, loans, allowances, deposits, derivatives, and regulatory capital - The company has elected to postpone the adoption of the Current Expected Credit Loss (CECL) methodology to January 1, 2022, as permitted by the CARES Act and subsequent extensions, due to the high degree of uncertainty in economic forecasting during the pandemic7183 - The company participated extensively in the Paycheck Protection Program (PPP), originating approximately 2,200 loans for $553 million in the first round and 1,200 loans for $209 million in the second, with a significant portion of these loans forgiven as of September 30, 20213941 - As of September 30, 2021, the company had no loans remaining in its commercial loan deferment program, with only six retail borrowers totaling $0.5 million remaining in the retail deferment program4647 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q3 and the first nine months of 2021, highlighting strong net income growth driven by increased net interest income, noninterest income, and a negative loan loss provision, alongside significant asset and deposit growth Financial Overview Net income significantly increased in Q3 2021 and for the first nine months, driven by core commercial loan growth, strong noninterest income, and a negative loan loss provision Key Performance Indicators | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income | $15.1M | $10.7M | | Diluted EPS | $0.95 | $0.66 | | Loan Loss Provision | $1.9M | $3.2M | - Core commercial loans (excluding PPP) grew by $298 million, or about 16% on an annualized basis, during the first nine months of 2021216 - Excess liquidity from government stimulus and reduced spending negatively impacted the net interest margin by 40 to 45 basis points during Q3 and the first nine months of 2021219 Financial Condition Total assets grew to $4.96 billion in the first nine months of 2021, fueled by deposit growth and core commercial loan expansion, while asset quality remained strong with nonperforming assets at 0.1% of total assets Loan Portfolio Composition (in thousands) | Loan Type | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Commercial | $2,842,359 | $2,793,962 | | Total Retail | $471,350 | $399,508 | | Total Loans | $3,313,709 | $3,193,470 | | PPP Loans (included in Commercial) | $116,000 | $365,000 | - Nonperforming assets were very low at $2.9 million (0.1% of total assets) as of September 30, 2021, down from $4.1 million at year-end 2020231 - The allowance for loan losses was $37.4 million, or 1.17% of total loans excluding PPP loans, and covered nonperforming loans by over 1,300% as of September 30, 2021238 Results of Operations Net income growth in 2021 was driven by increased net interest income despite margin compression, a negative loan loss provision, surging noninterest income from swaps and mortgage banking, and a moderate rise in noninterest expense Net Interest Margin Analysis | Period | Net Interest Income (Tax-Equiv) | Net Interest Margin | | :--- | :--- | :--- | | Q3 2021 | $31.2M | 2.71% | | Q3 2020 | $29.6M | 2.86% | | YTD 2021 | $91.7M | 2.76% | | YTD 2020 | $90.6M | 3.19% | - Noninterest income for the first nine months of 2021 was $43.6 million, a significant increase from $30.8 million in the prior year, boosted by a new interest rate swap program and a $1.1 million gain on a branch sale292 - Noninterest expense for the first nine months of 2021 rose to $77.5 million from $72.6 million in 2020, primarily due to increased salaries, commissions, and a $1.2 million rise in health insurance costs294 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed via NII simulation analysis, which projects a 5.5% increase in NII over the next twelve months if rates rise by 100 basis points - The primary tool for managing interest rate risk is net interest income simulation analysis, which is considered more accurate than traditional GAP analysis301 Net Interest Income Simulation (Next 12 Months) | Interest Rate Scenario | Dollar Change in NII | Percent Change in NII | | :--- | :--- | :--- | | Down 100 bps | $1,600,000 | 1.3% | | Up 100 bps | $6,700,000 | 5.5% | | Up 200 bps | $13,300,000 | 10.7% | | Up 300 bps | $19,700,000 | 16.0% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period306 - No material changes were made to internal controls over financial reporting during the quarter ended September 30, 2021307 Other Information Legal Proceedings The company is not a party to any legal proceedings considered material to its financial condition - There are no current legal proceedings that are material to the company's financial condition310 Risk Factors No material changes to risk factors have been reported since the last annual or quarterly filings - No material changes in risk factors were reported since the last annual or quarterly filings311 Unregistered Sales of Equity Securities and Use of Proceeds The company made no unregistered sales of equity securities in Q3 2021, repurchasing 288,863 shares for $8.9 million under its authorized program, with $8.4 million remaining available Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | July 1 – 31 | 114,412 | $30.62 | $3.5M | | August 1 – 31 | 81,884 | $31.96 | $2.6M | | September 1 – 30 | 92,567 | $30.54 | $2.8M | | Total | 288,863 | $30.97 | $8.9M | - A new $20.0 million share repurchase program was authorized in May 2021, with $8.4 million remaining available under this program as of September 30, 2021313315 Defaults Upon Senior Securities This item is not applicable as there were no defaults upon senior securities Mine Safety Disclosures This item is not applicable Other Information This item is not applicable Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data