Oppenheimer Comments On Mercantile Bank Following Another Loss

Management of Mercantile Bank MBWM has successfully navigated the bank through some very challenging times in Michigan. Shrinking the balance sheet reduces the earnings power of the bank coming out of the cycle but was necessary to bolster capital levels. Profitability will still take time to return as it appears to us that the worst has passed and Mercantile will live to fight another battle. Oppenheimer points out the strong move in price since Nov. '11 and maintains its Perform rating. Mercantile Bank reported 4Q10 earnings of ($0.62) compared to ($0.67) in 3Q10 and ($3.11) in 4Q09. This result was below Oppenheimer's estimate of ($0.30) and the consensus view of ($0.29). The earnings miss was largely driven by higher income tax expense related to the change in value of unrealized gains/losses in the securities book. Mercantile's capital levels improved, with Tier 1 and tangible common equity ratios ending the quar ter at 11.2% and 6.5%, respectively. While the company has reported negative earnings for eight consecutive quarters, Mercantile has been able to maintain "well capitalized" levels by shrinking the balance sheet and reducing risk weighted assets. Based on Mercantile's 4Q10 results and our outlook for FY11 we revise our EPS estimates. Oppenheimer's FY11E is now ($0.25) as it now expects additional balance sheet contraction. MBWM is trading lower at $8.98