Mercantile Bank Corp. (MBWM)

negative revenue and earnings growth and 264 million in debt

Mercantile Bank Corp is a financial holding company providing banking services and has demonstrated its ability to produce superior results even in difficult operating environment. It has been very responsive to the changing economic situation by controlling expense and growing loan balances with low cost deposits. The year 2006 had net interest income increase by 9.7% supported by profitability and strong earnings asset growth.

Its unique strength has been its capacity to garner low cost deposit as a result of several initiatives like the launch of a package designed to meet both the personal and business banking needs of commercial customers. Endorsing the same, 2006 was a big year for health saving accounts openings in association with one of the largest employer and municipal organization. However, the funding gap being filled by wholesale funds like certificate of deposits has slightly hindered the net interest margin growth.

The bank has been prudent in maintaining its asset quality forgoing it business while its competitors were aggressively undercutting for growth. Fee income has increased modestly and is exploring for ways to increase the same spotting cross-selling opportunities to its existing customer base. Moreover plans of launching a internet banking product in the first quarter of 2007 would boost the non- interest income.

The management doesn’t have any plans of global expansion with an aim of concentrating on the existing footprint trying to steal market share from its competitors. Industry is currently facing margins pressures, deteriorating asset quality and inverted yield. However the outlook is expected to change from the second half of 2007 with Federal Reserve expected to cut down the interest rates. The bank seems to be well capitalized with good credit quality metrics and all set to beat the market.