Mercantile Bank Corporation Announces Fourth Quarter and Full-Year 2008 Results

• Press Release
• Source: Mercantile Bank Corporation
• On 6:00 am EST, Wednesday January 14, 2009

GRAND RAPIDS, Mich., Jan. 14, 2009 (GLOBE NEWSWIRE) -- Mercantile Bank Corporation (NasdaqGS:MBWM - News) (``Mercantile'' or the ``Company'') reported fourth quarter 2008 net income of $0.3 million, or $0.04 per diluted share, compared with net income of $0.1 million, or $0.01 per diluted share, for the fourth quarter of 2007. For the twelve months ended December 31, 2008, Mercantile reported a net loss of $5.0 million, or $0.59 per diluted share, compared with net income of $9.0 million, or $1.06 per diluted share, for the 2007 12-month period. Mercantile's 2008 performance has been impacted primarily by a lower average net interest margin relative to 2007 due to declining interest rates, and a higher provision for loan and lease losses taken in response to deteriorating asset quality.

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Mercantile returned to profitability for the second half of 2008. The net interest margin expanded during the most recent two quarters from its second quarter low point, and the provision for loan and lease losses declined from that recorded during the first six months as fewer new problem assets were identified. Loans outstanding rose modestly year over year.

Michael Price, Chairman and CEO of Mercantile Bank Corporation, stated, ``Credit quality still remains our major concern and we continue to be relentlessly vigilant in the identification and management of problem assets. We began actively working with our borrowers as soon as our local economy began to show signs of weakness -- over six quarters ago -- and by now, we have developed a constructive dialogue with the majority of our borrowers, which has strengthened our relationships and enhanced our ability to resolve complex issues. Although nonaccrual loans increased this quarter, the vast majority of these loans had been previously identified and workout plans were already in place with actions taken to minimize losses.

``It took several quarters for our fixed rate liabilities to reprice downward and catch up with our more interest-sensitive loan portfolio. Our net interest margin bottomed-out in the second quarter of 2008, and has since expanded in each of the two successive quarters. We anticipate quarterly margin improvement well into 2009 as we continue to reprice maturing deposits at lower interest rates. Our loan yields have also recently stabilized -- despite falling interest rates -- as a result of several pricing initiatives we implemented over the past year. Lastly, we are particularly pleased that we appear to have settled into a period of more rational lending practices within our markets, enabling us to structure and price our loans to more closely reflect market risks. This too should have a positive impact on our earnings performance in future periods.''

Operating Results

Total revenue for 2008, consisting of net interest income and noninterest income, was $53.5 million, a decline of 12.9 percent from the $61.4 million reported for 2007. Net interest income was $46.2 million in 2008 compared to $55.6 million for 2007; the $9.3 million, or 16.8 percent, decline resulted primarily from a 57 basis point, or 19.9 percent, decrease in the net interest margin, from 2.87 percent for 2007 to 2.30 percent for 2008, partially offset by a $79.3 million, or 4.0 percent, increase in average earning assets year over year.

Fourth quarter 2008 net interest income was $12.5 million, a decline of $0.6 million, or 4.4 percent, from the $13.1 million generated in the year-ago fourth quarter. The net interest margin declined from 2.64 percent for the 2007 fourth quarter to 2.40 percent in the current-year fourth quarter, down 24 basis points, or 9.1 percent, while average earning assets increased $109.6 million (up 5.5 percent) quarter over quarter. Mr. Price added that the year-over-year results mask the progress Mercantile has made since mid-year. ``Since the end of the second quarter, we increased net interest income by $1.9 million from a combination of margin expansion and earning asset growth.''

For 2008, noninterest income was $7.3 million, up $1.4 million, or 24.1 percent, from the $5.9 million generated in 2007, primarily from increased service charges on deposit accounts, bank-owned life insurance income, and mortgage banking income. Mercantile's quarterly noninterest income remained stable at approximately $1.8 million; this represented an increase of approximately $0.3 million from fourth quarter 2007 noninterest income of $1.5 million.

The provision for loan and lease losses totaled $21.2 million for 2008, of which $4.0 million was recorded in the fourth quarter. The 2007 provision expense, by comparison, was $11.1 million, including $4.9 million in the 2007 fourth quarter. The larger 2008 provision expense primarily reflects a higher level of net loan and lease charge-offs and increased reserve levels to provide for potential future losses in the existing loan and lease portfolio. The allowance for loan and lease losses was 1.46 percent of total loans and leases as of December 31, 2008 compared to 1.58 percent at September 30, 2008, and 1.43 percent at December 31, 2007.

For 2008, noninterest expense totaled $42.1 million, up $3.8 million, or 9.8 percent, from the $38.4 million reported for 2007. Included in 2007 salary and benefit costs was a one-time $1.2 million expense associated with the financial retirement package for the former chairman and chief executive officer. A majority of the 2008 growth in noninterest expense relates to costs associated with the administration and resolution of problem assets, including legal expenses, property tax payments, appraisal costs, and write-downs on foreclosed properties, and increased FDIC insurance premium assessments. Noninterest expense for the fourth quarter of 2008 was $10.5 million, an increase of $0.5 million, or 5.0 percent, over the prior-year fourth quarter. Costs related to problem assets totaled $3.3 million during 2008, including $0.9 million expensed during the fourth quarter of 2008. By comparison, these costs totaled $1.1 million during 2007, of which $0.5 million was recognized in the fourth quarter. Write-downs on foreclosed properties accounted for $1.4 million of the $3.3 million in costs related to problem assets incurred in 2008.

Balance Sheet

Total assets were $2.21 billion as of December 31, 2008, an increase of $86.6 million, or 4.1 percent, since December 31, 2007. Total loans and leases were $1.86 billion, up $57.0 million, or 3.2 percent, over the past twelve months. Approximately 72 percent of Mercantile's loan portfolio is secured by real estate, with commercial real estate (CRE) loans and construction and land development (C&D) loans accounting for 50.0 percent and 14.2 percent, respectively, of total loans and leases. Deposits totaled $1.60 billion as of December 31, 2008, up $8.4 million, or 0.5 percent, from year-end 2007. Asset growth was primarily funded by Federal Home Loan Bank advances, which increased $90.0 million over the past twelve months.

Asset Quality

Mr. Price continued, ``The prolonged decline of our real estate markets has been exacerbated by recent crises in the financial markets and their spreading recessionary impact on major industries. Certainly our borrowers have become increasingly stressed. Weakness is spreading to the commercial real estate sector and to those businesses affected by uncertainties in the auto industry. Nevertheless, we are identifying fewer watch list credits, and we are able to dispose of foreclosed real estate expeditiously once we gain control of the assets. We pursue every opportunity to mitigate risk with existing borrowers, but at the same time, we continue to book new loans, albeit with an increasingly conservative posture.''

At December 31, 2008, nonperforming assets totaled $57.4 million, or 2.60 percent of total assets, up from $47.8 million (2.17 percent of total assets) at September 30, 2008 and $35.7 million (1.68 percent of total assets) at December 31, 2007. Approximately 23 percent of nonperforming loans were contractually current on payments as of December 31, 2008. The net increase in nonperforming assets during the fourth quarter of 2008 was $9.6 million, reflecting the addition of $20.0 million of new nonperforming loans, less the return of loans to accruing status, loan paydowns, sales of foreclosed real estate and write-downs of foreclosed properties totaling $4.0 million, and net loan and lease charge-offs of $6.4 million.

Nonperforming CRE loans and foreclosed real estate totaled $22.8 million as of December 31, 2008, compared to $22.0 million as of September 30, 2008. In addition, $5.1 million of commercial and industrial loans were classified as nonperforming. Nonperforming residential C&D loans and foreclosed real estate totaled $25.3 million. In addition, Mercantile has $4.2 million of nonperforming loans secured by, and foreclosed properties consisting of, 1-4 family residential properties at December 31, 2008. At September 30, 2008, the levels were $15.9 million and $5.2 million, respectively.

For the twelve months of 2008, net loan and lease charge-offs totaled $19.9 million, or 1.09 percent of average total loans and leases, compared with $6.7 million, or 0.38 percent, for 2007. For the fourth quarter, net loan and lease charge-offs were $6.4 million, or an annualized 1.37 percent of average total loans and leases, up from $4.3 million, or 0.91 percent, for the preceding quarter. Net loan and lease charge-offs associated with commercial-related loans and residential-related loans were $13.8 million and $6.1 million, respectively, during fiscal year 2008, and $3.9 million and $2.5 million, respectively, for the fourth quarter of 2008. Of the $6.6 million in gross loan and lease charge-offs during the fourth quarter, approximately $2.4 million, or 37 percent, reflect the charge-off of specific reserves that were created through provisions for loan and lease losses in prior quarters.

Capital Position

Shareholders' equity totaled $174.4 million at December 31, 2008, a decline of $3.8 million, or 2.1 percent, from the level of equity at December 31, 2007. Total shares outstanding at year-end 2008 were 8,593,304. The Bank remains ``well-capitalized'' under regulatory capital requirements, with a total risk-based capital ratio of 10.8 percent as of December 31, 2008. The Bank's total regulatory capital equaled $226.0 million at December 31, 2008, approximately $16.7 million in excess of the minimum amount required to be categorized as ``well-capitalized''.

In conclusion, Mr. Price commented, ``Where Michigan and the automobile industry once stood alone as harbingers of an economic decline, the downturn has now spread to all corners of our national economy. While we realize that further deterioration is likely to occur in the months ahead, we remain cautiously optimistic that our loan administration policies and practices will help to moderate the economy's impact on our financial results.''

About Mercantile Bank Corporation

Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan. Headquartered in Grand Rapids, the Bank provides a wide variety of commercial banking services through its five full-service banking offices in greater Grand Rapids, and its full-service banking offices in Holland, Lansing, Ann Arbor and Oakland County, Michigan. Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol ``MBWM.''

Forward-Looking Statements

This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and nontraditional 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; changes in local real estate values; changes in the national and local economies; and other factors, including risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

 Mercantile Bank Corporation
 Fourth Quarter 2008 Results

                     MERCANTILE BANK CORPORATION
                CONSOLIDATED FINANCIAL HIGHLIGHTS
                             (Unaudited)

                                       Quarterly
 (dollars in     -----------------------------------------------------
  thousands         2008       2008       2008       2008       2007
  except per      4th Qtr    3rd Qtr    2nd Qtr    1st Qtr    4th Qtr
  share data)    ---------  ---------  ---------  ---------  ---------

 EARNINGS
  Net interest
   income       $   12,505     11,728     10,592     11,383     13,074
  Provision for
   loan and
   lease losses $    4,000      1,900      6,200      9,100      4,900
  Noninterest
   income       $    1,818      1,817      1,758      1,890      1,534
  Noninterest
   expense      $   10,506     10,513     10,777     10,329     10,008
  Net income
   (loss)       $      313      1,079     (2,612)    (3,738)        95
  Basic
   earnings
   (loss) per
   share        $     0.04       0.13      (0.31)     (0.44)      0.01
  Diluted
   earnings
   (loss) per
   share        $     0.04       0.13      (0.31)     (0.44)      0.01
  Average basic
   shares
   outstanding   8,475,991  8,472,569  8,469,097  8,465,148  8,462,260
  Average
   diluted
   shares
   outstanding   8,532,153  8,530,347  8,469,097  8,465,148  8,485,035

 PERFORMANCE
  RATIOS
  Return on
   average
   assets             0.06%      0.20%     (0.49%)    (0.71%)     0.02%
  Return on
   average
   common
   equity             0.72%      2.53%     (6.09%)    (8.44%)     0.21%
  Net interest
   margin
  (fully tax-
  equivalent)         2.40%      2.30%      2.15%      2.33%      2.64%
  Efficiency
   ratio             73.35%     77.62%     87.26%     77.82%     68.51%
  Full-time
   equivalent
   employees           303        307        318        317        306

 CAPITAL
  Period-ending
   equity to
   assets             7.90%      7.76%      7.75%      8.24%      8.40%
  Tier 1
   leverage
   capital ratio      9.17%      9.34%      9.50%      9.69%      9.97%
  Tier 1
   risk-based
   capital ratio      9.68%      9.61%      9.71%     10.05%     10.14%
  Total
   risk-based
   capital ratio     10.93%     10.86%     10.96%     11.33%     11.39%
  Book value
   per share    $    20.29      20.08      19.66      20.43      20.89
  Cash dividend
   per share    $     0.04       0.04       0.08       0.15       0.14

 ASSET QUALITY
  Gross loan
   charge-offs  $    6,564      4,462      4,431      5,137      3,988
  Net loan
   charge-offs  $    6,403      4,271      4,275      4,957      3,943
  Net loan
   charge-offs
   to average
   loans              1.37%      0.91%      0.95%      1.11%      0.87%
  Allowance for
   loan and
   lease losses $   27,108     29,511     31,881     29,957     25,814
  Allowance for
   losses to
   total loans        1.46%      1.58%      1.73%      1.67%      1.43%
  Nonperforming
   loans        $   49,303     42,047     43,297     35,259     29,809
  Other real
   estate and
   repossessed
   assets       $    8,118      5,743      3,322      5,371      5,895
  Nonperforming
   assets to
   total assets       2.60%      2.17%      2.16%      1.92%      1.68%

 END OF PERIOD
  BALANCES
  Loans and
   leases       $1,856,915  1,870,799  1,840,793  1,794,310  1,799,880
  Total earning
   assets
   (before
   allowance)   $2,108,752  2,099,408  2,048,703  2,006,373  2,011,908
  Total assets  $2,208,010  2,207,359  2,163,354  2,115,948  2,121,403
  Deposits      $1,599,575  1,575,713  1,544,704  1,554,750  1,591,181
  Shareholders'
   equity       $  174,372    171,348    167,713    174,295    178,155

 AVERAGE
  BALANCES
  Loans and
   leases       $1,858,701  1,852,848  1,812,898  1,793,726  1,791,510
  Total earning
   assets
   (before
   allowance)   $2,116,540  2,073,787  2,029,494  2,015,210  2,006,940
  Total assets  $2,214,412  2,172,859  2,125,731  2,115,468  2,104,212
  Deposits      $1,588,615  1,550,544  1,531,853  1,578,545  1,618,825
  Shareholders'
   equity       $  172,374    169,241    171,902    177,632    178,583


                                                      Year-To-Date
                                                  --------------------
 (dollars in thousands except per share data)       2008        2007
                                                  ---------  ---------

 EARNINGS
  Net interest income                            $   46,209     55,557
  Provision for loan and lease losses            $   21,200     11,070
  Noninterest income                             $    7,282      5,870
  Noninterest expense                            $   42,126     38,356
  Net income (loss)                              $   (4,959)     8,966
  Basic earnings (loss) per share                $    (0.59)      1.06
  Diluted earnings (loss) per share              $    (0.59)      1.06
  Average basic shares outstanding                8,470,721  8,453,483
  Average diluted shares outstanding              8,470,721  8,497,509

 PERFORMANCE RATIOS
  Return on average assets                            (0.23%)     0.43%
  Return on average common equity                     (2.87%)     5.10%
  Net interest margin (fully tax-equivalent)           2.30%      2.87%
  Efficiency ratio                                    78.75%     62.44%
  Full-time equivalent employees                        303        306

 CAPITAL
  Period-ending equity to assets                       7.90%      8.40%
  Tier 1 leverage capital ratio                        9.17%      9.97%
  Tier 1 risk-based capital ratio                      9.68%     10.14%
  Total risk-based capital ratio                      10.93%     11.39%
  Book value per share                           $    20.29      20.89
  Cash dividend per share                        $     0.31       0.55

 ASSET QUALITY
  Gross loan charge-offs                         $   20,594      7,275
  Net loan charge-offs                           $   19,906      6,667
  Net loan charge-offs to average loans                1.09%      0.38%
  Allowance for loan and lease losses            $   27,108     25,814
  Allowance for losses to total loans                  1.46%      1.43%
  Nonperforming loans                            $   49,303     29,809
  Other real estate and repossessed assets       $    8,118      5,895
  Nonperforming assets to total assets                 2.60%      1.68%

 END OF PERIOD BALANCES
  Loans and leases                               $1,856,915  1,799,880
  Total earning assets (before allowance)        $2,108,752  2,011,908
  Total assets                                   $2,208,010  2,121,403
  Deposits                                       $1,599,575  1,591,181
  Shareholders' equity                           $  174,372    178,155

 AVERAGE BALANCES
  Loans and leases                               $1,829,686  1,765,465
  Total earning assets (before allowance)        $2,058,957  1,979,625
  Total assets                                   $2,157,322  2,083,846
  Deposits                                       $1,562,429  1,635,289
  Shareholders' equity                           $  172,777    175,898


 Mercantile Bank Corporation
 Fourth Quarter 2008 Results

                     MERCANTILE BANK CORPORATION
                   CONSOLIDATED REPORTS OF INCOME

                     THREE        THREE        TWELVE        TWELVE
                     MONTHS       MONTHS       MONTHS        MONTHS
                     ENDED        ENDED        ENDED         ENDED
                  December 31, December 31, December 31,  December 31,
                      2008         2007         2008          2007
                  -----------  -----------  ------------  ------------
                  (Unaudited)  (Unaudited)   (Unaudited)    (Audited)

 INTEREST INCOME
  Loans and
   leases,
   including fees $27,306,000  $32,674,000  $110,013,000  $133,685,000
  Investment
   securities       2,781,000    2,535,000    10,848,000    10,056,000
  Federal funds
   sold                47,000       77,000       204,000       420,000
  Short-term
   investments              0        7,000         7,000        20,000
                  -----------  -----------  ------------  ------------
   Total interest
    income         30,134,000   35,293,000   121,072,000   144,181,000

 INTEREST EXPENSE
  Deposits         13,668,000   18,860,000    59,812,000    76,221,000
  Short term
   borrowings         515,000      896,000     2,021,000     3,493,000
  Federal Home
   Loan Bank
   advances         2,720,000    1,756,000    10,554,000     6,100,000
  Long term
   borrowings         726,000      707,000     2,476,000     2,810,000
                  -----------  -----------  ------------  ------------
   Total interest
    expense        17,629,000   22,219,000    74,863,000    88,624,000
                  -----------  -----------  ------------  ------------

   Net interest
    income         12,505,000   13,074,000    46,209,000    55,557,000

  Provision for
   loan and lease
   losses           4,000,000    4,900,000    21,200,000    11,070,000
                  -----------  -----------  ------------  ------------

   Net interest
    income after
    provision for
    loan and lease
    losses          8,505,000    8,174,000    25,009,000    44,487,000

 NONINTEREST
  INCOME
  Service charges
   on accounts        522,000      425,000     1,994,000     1,610,000
  Other income      1,296,000    1,109,000     5,288,000     4,260,000
                  -----------  -----------  ------------  ------------
   Total
    noninterest
    income          1,818,000    1,534,000     7,282,000     5,870,000

 NONINTEREST
  EXPENSE
  Salaries and
   benefits         5,462,000    5,546,000    22,493,000    22,876,000
  Occupancy           927,000      837,000     3,826,000     3,300,000
  Furniture and
   equipment          478,000      540,000     1,980,000     2,063,000
  Other expense     3,639,000    3,085,000    13,827,000    10,117,000
                  -----------  -----------  ------------  ------------
   Total
    noninterest
    expense        10,506,000   10,008,000    42,126,000    38,356,000
                  -----------  -----------  ------------  ------------

   Income (loss)
    before federal
    income tax
    expense
    (benefit)        (183,000)    (300,000)   (9,835,000)   12,001,000

  Federal income
   tax expense
   (benefit)         (496,000)    (395,000)   (4,876,000)    3,035,000
                  -----------  -----------  ------------  ------------

   Net income
    (loss)        $   313,000  $    95,000  $ (4,959,000) $  8,966,000
                  ===========  ===========  ============  ============

  Basic earnings
   (loss) per
   share                $0.04        $0.01        ($0.59)        $1.06

  Diluted earnings
   (loss) per
   share                $0.04        $0.01        ($0.59)        $1.06

  Average basic
   shares
   outstanding      8,475,991    8,462,260     8,470,721     8,453,483

  Average diluted
   shares
   outstanding      8,532,153    8,485,035     8,470,721     8,497,509


 Mercantile Bank Corporation
 Fourth Quarter 2008 Results

                     MERCANTILE BANK CORPORATION
                     CONSOLIDATED BALANCE SHEETS

                         DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                             2008            2007            2006
                             ----            ----            ----
                         (Unaudited)      (Audited)       (Audited)
 ASSETS
  Cash and due from
   banks                $   16,754,000  $   29,138,000  $   51,098,000
  Short-term
   investments                 100,000         292,000         282,000
  Federal funds sold         8,950,000               0               0
                        --------------  --------------  --------------
   Total cash and cash
    equivalents             25,804,000      29,430,000      51,380,000

  Securities available
   for sale                162,669,000     136,673,000     130,967,000
  Securities held to
   maturity                 64,437,000      65,330,000      63,943,000
  Federal Home Loan
   Bank stock               15,681,000       9,733,000       7,509,000

  Loans and leases       1,856,915,000   1,799,880,000   1,745,478,000
  Allowance for loan
   and lease losses        (27,108,000)    (25,814,000)    (21,411,000)
                        --------------  --------------  --------------
   Loans and leases,
    net                  1,829,807,000   1,774,066,000   1,724,067,000

  Premises and
   equipment, net           32,334,000      34,351,000      33,539,000
  Bank owned life
   insurance policies       42,462,000      39,118,000      30,858,000
  Accrued interest
   receivable                8,513,000       9,957,000      10,287,000
  Other assets              26,303,000      22,745,000      14,718,000
                        --------------  --------------  --------------

   Total assets         $2,208,010,000  $2,121,403,000  $2,067,268,000
                        ==============  ==============  ==============

 LIABILITIES AND
  SHAREHOLDERS' EQUITY
  Deposits:
   Noninterest-bearing  $  110,712,000  $  133,056,000  $  133,197,000
   Interest-bearing      1,488,863,000   1,458,125,000   1,513,706,000
                        --------------  --------------  --------------
    Total deposits       1,599,575,000   1,591,181,000   1,646,903,000

  Securities sold under
   agreements to
   repurchase               94,413,000      97,465,000      85,472,000
  Federal funds
   purchased                         0      13,800,000       9,800,000
  Federal Home Loan
   Bank advances           270,000,000     180,000,000      95,000,000
  Subordinated
   debentures               32,990,000      32,990,000      32,990,000
  Other borrowed money      19,528,000       4,013,000       3,316,000
  Accrued interest and
   other liabilities        17,132,000      23,799,000      21,872,000
                        --------------  --------------  --------------
   Total liabilities     2,033,638,000   1,943,248,000   1,895,353,000

 SHAREHOLDERS' EQUITY
  Common stock             172,353,000     172,938,000     161,223,000
  Retained earnings
   (deficit)                (1,281,000)      4,948,000      11,794,000
  Accumulated other
   comprehensive income
   (loss)                    3,300,000         269,000      (1,102,000)
                        --------------  --------------  --------------
   Total shareholders'
    equity                 174,372,000     178,155,000     171,915,000
                        --------------  --------------  --------------

   Total liabilities
    and shareholders'
    equity              $2,208,010,000  $2,121,403,000  $2,067,268,000
                        ==============  ==============  ==============

          Mercantile Bank Corporation
          Michael Price, Chairman & CEO
            616-726-1600
            mprice@mercbank.com
          Charles Christmas, Chief Financial Officer
            616-726-1202
            cchristmas@mercbank.com