Since its establishment in 1997, Mercantile has grown to $1.3 billion in assets and to five full-service banking centers in Grand Rapids and one in Holland while maintaining a strategic focus on commercial lending.
Its bread and butter is the standard commercial loan to the small to medium-sized business. Commercial loans constitute nearly 90 percent of its portfolio.
“Through our six-and-a-half year history, our earnings growth, asset quality, asset growth, net interest margin management and our efficiency have all stayed the same. That to me is significant,” said Gerald Johnson Jr., chairman and CEO.
“We are, by virtue of all the M&A (mergers and acquisitions) activity in West Michigan, the largest independent bank headquartered in Grand Rapids.”
The bank’s growth has been 100 percent organic, Johnson pointed out.
Mercantile is in the Russell 3,000 and has been named the past two years by Fortune magazine as one of the 100 fastest growing small businesses.
“One of the reasons we’ve been able to achieve our growth is a very dynamic marketplace,” Johnson explained.
“West Michigan has one of the highest per capita incidences of family-owned businesses of any place in the United States.
“It’s also a very parochial area, and you combine the two of those with all the M&A activity that we’ve had and it has really enabled us to achieve over 10 percent market share in the years we’ve been open.”
He said Mercantile has benefited from all the mergers and acquisitions that have taken place in West Michigan.
“When we were starting this bank in the summer of 1997, if somebody would have told us that every major competitor we had would be acquired, I wouldn’t have believed it,” Johnson said.
The most significant deal, Johnson said, was probably Fifth Third Bank’s acquisition of Old Kent Bank.
“We actually did a $30 million capital raise to avail ourselves to have enough capital to take on the business which we felt was coming — and which did come.”
Johnson noted that a lot of banks Mercantile’s size don’t have an internal loan review process. Mercantile does, as well as internal audit and internal fraud prevention departments.
“These backroom areas — though there’s a cost associated with them from a payroll standpoint — really help us keep our asset quality and earnings quality about as pristine as you can get them.”
High quality service is the name of the game, he said.
“We’re not the least expensive bank in town, but we do give the best service,” Johnson said.
“Our customer turnover is minimal, and we have a very responsive approval process. Because we do have experienced lenders, we can avoid a lot of the bureaucracy that the large banks can’t.”
CFO Charles Christmas said Mercantile spent a lot of time last year building its infrastructure in terms of facilities, staff and expansion of backroom operations. Of the company’s six offices, three of them came on line in the last 15 months, he pointed out.
Mercantile hired additional loan officers last year, Christmas said, and continued to build backroom operations for deposit, loan and accounting operations and internal loan review.
“What we need to do to maintain customers is to provide very, very good service. So we want to maintain the strong internal controls we already have in place,” he added.
He pointed out that Mercantile started the year with very rapid asset growth of $325.6 million in the first quarter, or 33.6 percent over the first quarter of 2003.
Mercantile’s bottom line is driven by its loan portfolio.
Loans increased by $75 million during the quarter, compared to loan growth of $40 million in the first quarter of last year. Loan growth in 2003 was $264 million.
Christmas also noted that the company has experienced a compounded annual growth rate of 48 percent over the past five years.