Mercantile Bank Corp. in Grand Rapids, Mich., has now made money in four straight quarters and its auditors seem convinced that it will remain profitable for the foreseeable future.
The $1.4 billion-asset company said Tuesday that it earned $30 million in the fourth quarter, with $27.4 million of those earnings coming from the reversal of its valuation allowance against its deferred tax asset. Such allowances are taken after several quarters of losses and when auditors doubt sustained earnings will return in the subsequent quarters.
Mercantile lost money in 2009 and 2010 as it grappled with credit problems.Reversals occur following several consecutive profitable quarters in which earnings are driven by core results and not one-time occurrences. The deferred tax asset allows companies to help offset their tax bills.
Excluding the reversal, Mercantile said it would have earned $2.6 million for the quarter, compared to a loss $5.3 million in last year's fourth quarter.
The company's core results included net interest income of $12.3 million, down 10% from a year earlier. The decline was largely caused by a 20% reduction in interest income, but offset by a 41% decrease in interest expense. The interest expense decline is the benefit of the company's objective of replacing its wholesale funding with local deposits. Wholesale funds made up 30% of total funds at the end of 2011, compared to 71.5% in 2008.
Mercantile's provision for loan losses was $1.9 million, down 72% from a year earlier. The reduction was driven by a decline in problem assets, fewer loan-rating downgrades and an uptick in loan-rating upgrades. Nonperforming assets totaled $60.3 million, or 4.2% of assets, down 30% from a year earlier. The company also said in a press release that it has "virtually zero" 30 to 89 past due loans.
For 2011, the company earned $36.1 million, compared to a loss of $14.6 million a year earlier.
In heavy trading, Mercantile's shares were up more than 6% at midday Tuesday, to $12.