Mercantile Bancorp in Grand Rapids, Mich., seems willing to trade asset quality for loan growth.
The $3.1 billion-asset company reported Tuesday that its loan portfolio shrank by $27 million during the fourth quarter, to $2.4 billion. Mercantile gave several reasons for the 1.2% linked-quarter decline; a $24 million commercial relationship was placed in syndication and $8 million of loans on the company's internal watch list were paid off.
The tradeoff was stellar credit quality. Nonperforming assets at Dec. 31 totaled $6.4 million, or 0.2% of total assets, and net chargeoffs were a minimal $600,000 during the fourth quarter.
Still, management said it expects loan growth this year.
The company, which originated $120 million of commercial loans in the fourth quarter, has another $102 million in unfunded credits it expects to fund shortly.
"We are confident that solid loan growth can be achieved in future periods in light of the robust current loan pipeline and [an] ongoing focus on identifying new lending opportunities," Raymond Reitsma, president of Mercantile's Bank, said in a press release.
Mercantile's recently announced mortgage banking initiative is paying dividends. The company generated $1.2 million in revenue from home sales during the fourth quarter, rising slightly from the third quarter and nearly doubling what it reported a year earlier.
"We expect [mortgage banking] to perform very well throughout 2017," Robert Kaminski, Mercantile's president and CEO, said during a conference call Tuesday. Kaminski projected $4.4 million of mortgage banking revenue in 2017, which would represent a 19% jump from last year.
A decline in loans cut into revenue, which fell 2.2% from the third quarter, to $31 million. But stronger-than-expected cost control helped the company’s earnings increase 3% from the third quarter, to $8.1 million. Earnings per share of 49 cents beat the average estimate of analysts polled by Bloomberg by 3 cents.