What happened
The share price of Mercantile Bank (MBWM 5.33%) climbed 16.4% this week as of Friday at 11:00 a.m. ET, according to S&P Global Market Intelligence. It had been up as much as 18.7% this week. Mercantile was trading at around $33.78 per share as of 11:00 a.m. ET Friday, up about 1% year to date.
The broader markets were mixed this week, as the S&P 500 was only up 0.9%, while the Dow Jones Industrial Average gained 2.3%. However, the Nasdaq Composite was down 0.3% as of Friday at 11:00 a.m. ET.
So what
Mercantile Bank is a small regional bank based in Grand Rapids, Michigan, with about $5.2 billion in total assets. But it has quietly had a good year and has been largely immune from the turmoil that upset the banking industry in the past two quarters. Its solid second-quarter earnings report is proof of that, as it saw year-over-year revenue and earnings gains and only a slight drop in deposits.
Specifically, net income rose 74% to $20.4 million in Q2, or $1.27 per share, up from $11.7 million a year ago this quarter. For the first two quarters, net income is $41.3 million, up from $23.2 million in the first half of 2022. Revenue was $55.2 million, up 31.2% year over year, buoyed by a 38.5% increase in net interest income to $47.6 million. Loans were up about 11% year over year to $4.1 billion, while deposits were down only slightly to $3.76 billion from $3.87 billion a year ago.
While costs of funds obviously rose due to higher interest rates, to 1.56% from 0.44% a year ago, Mercantile increased its net interest margin to 4.1% from 2.9% in the second quarter of 2022.
Provision for credit losses was up to $2 million this quarter from $0.5 million a year ago, but credit quality remained solid, as the net charge-off ratio was just 0.02%.
Now what
Its strong quarter and healthy balance sheet allowed Mercantile Bank to increase its dividend in the second quarter to $0.34 from $0.33, with a solid yield of 4% and a low payout ratio of 26%. This is the eighth straight year of dividend increases.
This is an excellent small bank, as shown in its second-quarter numbers. Like most small banks, it is also cheap, stemming from the volatility in the industry, with a price-to-earnings (P/E) ratio of just 6.8.
This stock is a decent buy, as macroeconomic trends should be improving for banks. It might be best for those looking for a steady, dependable income stock.