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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (date of earliest event reported): October 16, 2018

Mercantile Bank Corporation

(Exact name of registrant as specified in its charter)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

Item 2.02     Results of Operations and Financial Condition.

Earnings Release

On October 16, 2018, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter ended September 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated here by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01     Financial Statements and Exhibits.

(d) Exhibits.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 16, 2018

Exhibit Index

Exhibit 99.1

Mercantile Bank Corporation Reports Strong Third Quarter 2018 Results

Healthy loan growth and continued strength in core profitability highlight quarter

GRAND RAPIDS, Mich., October 16, 2018 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $10.1 million, or $0.61 per diluted share, for the third quarter of 2018, compared with net income of $8.3 million, or $0.51 per diluted share, for the respective prior-year period. Net income during the first nine months of 2018 totaled $30.5 million, or $1.83 per diluted share, compared to $23.3 million, or $1.41 per diluted share, during the first nine months of 2017.

Interest income related to purchased loan accounting entries increased net income during the third quarter of 2018 by $0.3 million, or $0.02 per diluted share, and net income during the first nine months of 2018 by $2.7 million, or $0.16 per diluted share; during the respective 2017 periods, net income increased $1.1 million, or $0.07 per diluted share, and $2.6 million, or $0.15 per diluted share, as a result of these entries. A bank owned life insurance claim during the first quarter of 2017 increased reported net income during the first nine months of 2017 by $1.2 million, or $0.07 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.15, or 34.1 percent, during the third quarter of 2018 compared to the prior-year third quarter, and $0.48, or 40.3 percent, during the first nine months of 2018 compared to the respective 2017 period.

Net income during the third quarter of 2018 and the first nine months of 2018 benefited from a reduction in the corporate federal income tax rate, which was lowered from 35 percent to 21 percent on January 1, 2018, as a result of the enactment of the Tax Cuts and Jobs Act. Mercantile’s effective tax rate was 19.0 percent during both the third quarter and first nine months of 2018, down from 30.8 percent and 30.7 percent during the respective prior-year periods.

“We are pleased to report that our current quarter operating results represent a continuation of the robust performance demonstrated during the first half of the year,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our sustained strength in core profitability, sound capital position, and healthy commercial and residential mortgage loan pipelines position us to finish the year in strong fashion and take advantage of future growth opportunities.”

Third quarter highlights include:

Operating Results

Total revenue, which consists of net interest income and noninterest income, was $34.5 million during the third quarter of 2018, up $1.3 million, or 3.9 percent, from the prior-year third quarter. Net interest income during the third quarter of 2018 was $29.8 million, up $1.2 million, or 4.2 percent, from the third quarter of 2017, reflecting a higher level of earning assets and an increased net interest margin.

The net interest margin was 3.87 percent in the third quarter of 2018, up from 3.83 percent in the prior-year third quarter. The improved net interest margin exhibits a higher yield on average earning assets, primarily reflecting an increased yield on commercial loans and a change in earning asset mix, which more than offset a higher cost of funds, mainly due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds. The increased yield on commercial loans primarily reflects the impact of higher interest rates on certain variable-rate commercial loans stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points in each of the past four quarters. The change in earning asset mix mainly reflects loan growth and a reduction in interest-earning deposit balances. On average, higher-yielding loans represented 86.8 percent of earning assets during the third quarter of 2018, up from 84.8 percent during the prior-year third quarter, while lower-yielding interest-earning deposit balances represented 2.0 percent of earning assets during the current-year third quarter, down from 3.9 percent during the respective 2017 period.

Net interest income and the net interest margin during the third quarters of 2018 and 2017 were affected by purchase accounting accretion and amortization entries associated with the fair value measurements recorded effective June 1, 2014. Increases in interest income on loans totaling $0.4 million and $1.8 million were recorded during the third quarters of 2018 and 2017, respectively. Purchased loan accretion amounts vary from period to period as a result of periodic cash flow re-estimations, loan payoffs, and payment performance. Increases in interest expense on subordinated debentures totaling $0.2 million were recorded during both the current-year third quarter and prior-year third quarter.

Mercantile recorded provisions for loan losses of $0.4 million and $1.0 million during the third quarters of 2018 and 2017, respectively. The provision expense recorded during the third quarter of 2018 primarily reflects loan growth, while the provision expense recorded during the prior-year third quarter mainly reflects an increased allocation related to the economic conditions environmental factor and loan growth.

Noninterest income during the third quarter of 2018 was $4.7 million, up $0.1 million, or 2.2 percent, from the $4.6 million recorded during the third quarter of 2017. The increase in noninterest income primarily reflects higher credit and debit card fees, service charges on accounts, and payroll processing revenue. Mortgage banking activity income declined slightly in the third quarter of 2018 compared to the prior-year third quarter, mainly reflecting the impacts of rising residential mortgage loan interest rates and a limited supply of homes for sale in Mercantile’s markets.

Noninterest expense totaled $21.7 million during the third quarter of 2018, up $1.4 million, or 7.1 percent, from the respective 2017 period. The higher level of expense primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases and higher stock-based compensation expense, as well as pay increases for all hourly employees.

Mr. Kaminski continued, “As anticipated, our net interest margin remained strong during the third quarter of 2018, reflecting ongoing sound asset quality, disciplined loan pricing, and a beneficial balance sheet structure. Our cost of funds continued to trend upwards in the third quarter, reflecting the continuing rising interest rate environment; however, its impact was more than offset by an increased yield on earning assets, primarily reflecting higher interest rates on certain variable-rate commercial loans. We believe that our current balance sheet structure postures our net interest income to benefit from any further Federal Open Market Committee tightening. Our strategic initiatives related to enhancing fee income continue to be successful, and we remain focused on controlling overhead costs. Although mortgage banking activity income continues to be hampered by the increasing interest rate environment and lack of inventory in our markets, we are pleased with the current pipeline and elevated level of pre-qualifications, and are enhancing our efforts to sell a greater percentage of originated mortgage loans.”

Balance Sheet

As of September 30, 2018, total assets were $3.30 billion, up $13.4 million from December 31, 2017. Over the same time period, total loans increased $139 million, equating to an annualize growth rate of 7.2 percent, while interest-earning deposits decreased $117 million, or 80.6 percent. During the twelve months ended September 30, 2018, total loans were up $143 million, or 5.6 percent, while interest-earning deposits were down $94.9 million, or 77.1 percent. The declines in interest-earning deposit balances primarily resulted from the funds being used to meet loan funding requirements. Approximately $119 million in commercial term loans to new and existing borrowers were originated during the third quarter of 2018, as continuing sales and relationship-building efforts resulted in additional lending opportunities. As of September 30, 2018, unfunded commitments on commercial construction and development loans totaled approximately $152 million, which are expected to be largely funded over the next 12 to 18 months.

Raymond Reitsma, President of Mercantile Bank of Michigan, noted, “After experiencing sluggish net loan growth during the fourth quarter of 2017 and a slight contraction in the loan portfolio during the first quarter of 2018 primarily due to certain larger commercial loan payoffs, we are very pleased with the net growth of $146 million during the combined second and third quarters of the current year, which produced an annualized growth rate of about 7 percent for the first nine months of 2018. The loan growth realized during the past two quarters reflects growth in the commercial portfolio, most notably in the commercial and industrial category, as well as the residential mortgage loan portfolio. We continue to attract new customer relationships and meet the needs of our existing customers with an ongoing commitment to sound underwriting and appropriate pricing. Based on our current pipeline, we believe that the commercial loan portfolio will reflect solid growth in future periods. Our strategic initiatives that were designed to increase residential mortgage market penetration continue to be effective, as depicted by growth in the portfolio for the tenth consecutive quarter. Residential mortgage loan pre-qualifications remain elevated, with the current level being about two times higher than the level at the same time last year.”

As of September 30, 2018, commercial and industrial loans and owner-occupied commercial real estate (“CRE”) loans combined represented approximately 59 percent of total commercial loans, while non-owner occupied CRE loans equaled about 35 percent of total commercial loans.

Total deposits at September 30, 2018 were $2.51 billion, down $13.6 million and up $19.8 million from December 31, 2017, and September 30, 2017, respectively, while local deposits were up $7.9 million and $43.2 million during the respective time periods. New commercial loan relationships and the success of various deposit account initiatives drove the growth in local deposits. Wholesale funds were $321 million, or approximately 11 percent of total funds, as of September 30, 2018, compared to $323 million and $325 million as of December 31, 2017, and September 30, 2017, respectively.

Asset Quality

Nonperforming assets at September 30, 2018, were $5.8 million, or 0.2 percent of total assets, compared to $9.4 million, or 0.3 percent of total assets, at December 31, 2017. The decline in nonperforming assets during the first nine months of 2018 primarily reflects successful loan collection efforts and sales of bank-owned properties that were no longer being used or considered for use as bank facilities. The level of past due loans remains nominal, and loan relationships on the internal watch list generally declined in number and dollar volume during the first nine months of 2018. Net loan recoveries were $0.1 million during the third quarter of 2018 and $1.1 million during the first nine months of 2018. Net loan charge-offs totaled $0.1 million during the prior-year third quarter and $1.1 million during the first nine months of 2017.

Capital Position

Shareholders’ equity totaled $379 million as of September 30, 2018, an increase of $13.6 million from year-end 2017. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.8 percent as of September 30, 2018, compared to 12.6 percent at December 31, 2017. At September 30, 2018, the Bank had approximately $87 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,616,502 total shares outstanding at September 30, 2018.

Mr. Kaminski concluded, “Our strong financial performance during the first nine months of 2018 positions us to meet profitability and growth targets. As evidenced by the ongoing cash dividend program, including the announcement of an increased fourth quarter dividend and special dividend earlier today, we remain committed to enhancing total shareholder value. Our market-leading products and services and focus on developing mutually-beneficial relationships have been instrumental in our ability to gain new clients and retain existing customers successfully. We are excited about the opportunities that are available to us in our markets as we continue to seek out prospective customers.”

About Mercantile Bank Corporation

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan.  Mercantile provides banking services to businesses, individuals and governmental units, and differentiates itself on the basis of service quality and the expertise of its banking staff. Mercantile has assets of approximately $3.3 billion and operates 47 banking offices. 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 or actions by bank regulators; 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.

FOR FURTHER INFORMATION: