Mercantile Bank Corp (MBWM) 2004 Q4 法說會逐字稿

Welcome to the Mercantile Bank Corporation fourth quarter earnings conference call. There will be a question-and-answer period at the end of the presentation. If you have a question at that time, please press star one on your touch-tone telephone. Before we begin today's call, I would like to remind everyone that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure, as well as statements of the plan and objectives of the Company or its management. Statements on economic performance and statements regarding the underlying assumptions of the Company's business. The Company's actual results could differ materially from any forward-looking statements made today due to several important factors described in the Company's latest Securities and Exchange Commission filings. The Company assumes no obligations to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by Mercantile Bank today, you can access it at the Company's website, www.mercbank.com. On the conference today from Mercantile Bank Corporation, we have Jerry Johnson, Chairman and Chief Executive Officer; Mike Price, President and Chief Operating Officer; Chuck Christmas, Chief Financial Officer; and Bob Kaminski, Executive Vice President. We will begin the call with management's prepared remarks and then open the call up to questions. It at this point, I would like it to turn the call over to Mr. Johnson.

Thank you, and thank all of you for joining us this morning to discuss the financial performance of Mercantile Bank Corporation for 2004. We are pleased once again to report exceptional results in earnings, earnings growth, asset growth, asset quality, and all of this augmented by our successful move into a new market in Holland, Michigan. 2004 was actually a watershed year for us. Our growth continued and continues relatively unabated. We positioned ourselves extremely well for the ongoing increases in interest rates, a strategy that served us well in 2004, as Chuck will mention in his remarks, and which also will have a very positive impact on our operating performance in 2005. Asset quality, while always excellent, continues to improve even more as the economy improves somewhat, and we continue to work with distressed credits on a daily basis.

As I mentioned, we successfully began full service operations in Holland. We added Merle Prins, a Holland business and community leader and former banking executive, to our corporate and bank boards and continued to expand our staff under the leadership of our sitting president, Jon Steiner. We began construction on our new downtown corporate headquarters, which we plan to occupy in late spring, 2005. For 2005, it appears, as I have mentioned, or at least alluded to a little earlier that the economy in west Michigan continues to slowly improve and this should really serve to underpin our growth strategy to -- helping us in our continued successful efforts to obtain market share and with this augmented by potentially increased borrowings and it deposit activity among our current customers. So with a good economy, we get new business, both from market share and from our current portfolio. All in all, 2004 was another exceptional year for Mercantile Bank Corporation. The ongoing outstanding efforts by the Mercantile staff, an improving economy, expanding market share, and the very high profile of Mercantile Bank Corporation within our market and within the state of Michigan all contributed to the outstanding results which we are discussing today. I will now ask Chuck to comment in more detail on our financial performance for 2004. Chuck?

Thanks, Jerry. And good morning, everybody. What I would like to do this morning is give you an overview of Mercantile's financial condition and operating results for the fourth quarter of 2004 and all of 2004, highlighting the major financial condition and performance balances and ratios. The underlying theme of Mercantile's financial numbers reflect the continued successful implementation of our strategy. That being a concentration on business lending, strong asset growth, led by growth of the commercial loan portfolio, high asset quality, and a low efficiency ratio. And our financial results continue to reflect our visits to the capital markets and the significant provision expense necessitated by our strong loan growth. In addition, our 2004 earnings results were impacted by the one-time write-off of issuance costs associated with the 1999 issuance of trust preferred securities which were redeemed in September of 2004 as part of a refinance. The $845,000 one-time charge equates to 548,000 on an after-tax basis. Most of my comments will provide both a GAAP and an adjusted number basis.

Our GAAP net income for the fourth quarter of 2004 was 4.5 million, a 1.5 million or 49% increase over the 3 million that we have made in the fourth quarter of 2003. And for all of 2004, our net income equaled 13.7 million, a 3.7 million or 37% increase over the 10 million that we had made in 2003. On a diluted earnings per share basis, our fourth quarter came in at 61 cents, a 45% increase over the 42 cents we had made in the fourth quarter of 2003; and for all of 2004, our GAAP diluted earnings per share were $1.87, an increase of 16% over the $1.61 that we had recorded in 2003. The 16% growth is very significant when you put that up to the fact that our average shares outstanding were up 18% in 2004, over 2003, due to the stock sale that we had completed in the fall of 2003. On an adjusted basis, our net income for 2004 was 14.3 million, a 4.3 million or 42% increase again over the 10 million that we had made in 2003. And our diluted earnings per share increases to $1.94, an increase of 20% over the $1.61 that we made in 2003, again average shares being outstanding up 18%. Our strong increases in net income continue to be achieved due to strong growth in net interest income resulting from earning asset growth and an improved net interest margin, which more than offset the growth in overhead costs and the continued significant loan loss provision expense due to strong loan growth.

With regards to net interest income, our overall profitability continues to be driven by strong earning asset growth, which is translated into increased net interest income, further supported by an improved net interest margin. In the fourth quarter of 2004, our net interest income equaled $12.1 million. That's an increase of 3.2 million or 35% over the fourth quarter of 2003, and for the whole year, our net interest income equaled 42.4 million. That's an increase of 11.1 million, or 36% over the 31.3 million we had earned in 2003. Our earning assets at the end of 2004 totaled $1.47 billion, that is up 312 million or 27% from the end of year 2003. Loans were up 281 million dollars during 2004, or about 90% of the total increase in earning assets. Our net interest margin for the fourth quarter of 2004 was 3.43%, that is up 17 basis points from the 326 we had earned in the fourth quarter of 2003. And for all of 2004, our net interest margin was 3.30%, up 8 basis points from the 322 we had earned in 2003. The increase in the net interest margin primarily reflects the recent increases in the prime rate, with increases in loan interest income more than offsetting increased deposit and borrowing costs. With regards to our net interest margin looking forward, we continue to not provide any specific guidance, but as in the past, the main issues certainly remain Federal Reserve action or inaction, loan yields, and wholesale fund rates.

Our variable rate loans at the end of 2004 totaled 1.03 billion or approximately 78% of our total loans. At the beginning of 2004, our variable rate loans equaled about 74% of our total loan portfolio. And four years ago, it was only 30%. As we had discussed at previous conference calls, with regards to variable rate loans at floors, the level has steadily declined with interest rate increases during the past six months. With the first increase in June 30, approximately 32% of our portfolio did not reprice because they were at floors. However, with the last -- the most recent increase from the Fed on December 15, that total had declined to just 5% of total loan and that level should continue to decline as we see future increases from the Federal Reserve. Our coast of wholesale funds have increased as market rates have increased since the beginning of the second quarter. At year-end, our average rate was 2.65%, up about 23 basis points from where it was at the beginning of the fourth quarter. Recent increases in interest rates will result in increased costs of wholesale funds going forward. For the first three months of 2005, we have approximately $187 million set to mature at an overall cost of 2.1%. And in the second quarter of 2005, we have approximately 150 million maturing at an average cost of 2.2%, and for the last six months of 2005, we have $260 million set to reprice or mature at an overall average cost of 2.60%. To put it in perspective, the 12 month CD rate on the brokered side is going at about 3. -- or excuse me 3.2%. That rate does price in future Fed increases, and when you look in conjunction with the continued high level of variable rate loans on our balance sheet, we believe we remain well-positioned for future Fed increases.

Loan loss provision expense in the fourth quarter of 2004 was $1 million, a slight increase of 50,000 from the fourth quarter of last year. And for all of 2004, our loan loss provision expense totaled 4.7 million, an increase of 900,000 or 24% over the 3.8 million recorded in all of 2003. The larger provision expense for 2004 over 2003 results from larger loan growth and a higher level of net charge-offs during 2004 in comparison to 2003.

Our noninterest income for the fourth quarter of 2004 was 1.1 million, virtually unchanged from the fourth quarter of 2003. And for the whole year of 2004, noninterest income totaled 4.3 million, about $100,000 lower than 2003. We had increased in virtually all nonmortgage-related activities, which offset the large decline in mortgage loan related fees that we had during 2004. Mortgage fees -- so mortgage-related fees were down $545,000 in 2004 compared to 2003, primarily the result of increases in interest rates and the fact that most borrowers had already refinanced in earlier years. The major changes in service -- in noninterest income for us includes service charges on deposit accounts, which were up 77,000 year-over-year; letter of credit fees were up 260,000, which primarily reflects an accounting change back in 2003; Internet banking fees were up 70,000; our payroll fee income was up 55,000. Again, we had increases in virtually all the categories but those are some of the major changes. With regards to noninterest expense, in the fourth quarter of 2004, we expensed 6.2 million, an increase of 1.3 million or 27% over 2003. That $6.2 million does include a $386,000 write-off related to a tax credit -- a tax credit transaction which also included a $414,000 reduction in federal income tax, so net to the bottom line was a positive $28,000.

For the whole year of 2004, on a GAAP basis, overhead costs totaled $23.2 million, up $5.1 million, or 28%, over 2003, 18.1 million. However, that increase of 5.1 million is less than 50% of the increase in net revenue during the same time period, which again was up 11.1 million. Our GAAP efficiency ratio for 2004 was 49.6%, a 2% improvement from our efficiency ratio in 2003. Our whole year adjusted overhead costs, again backing out the trust preferred refinance charge, totaled 22.4 million, an increase of 4.3 million, or 24% over 2003, but again, our net revenue being up 11.1 million, that's 2.5 times the growth in our overhead costs. And our adjusted whole year efficiency ratio in 2004 was 47.8%, a 5% improvement over 2003. With regards to growth in our overhead cost, of the $4.3 million increase in adjusted year-over-year, about 60% is in salaries and benefits, primarily from increase in staff which was up 20% year-over-year. 9% of the increase was also due to the aforementioned tax credit transaction. Other overhead costs were up due to increased asset base.

We ended the year on total assets of $1.54 billion, and in the fourth quarter, that was an increase of $61 million, or 17%. Loans were up 63 million, or annualized 20% growth. About $40 million of that $63 million on loan growth occurred during the month of December. For all of 2004, our assets increased $313 million, or 27%, and loans comprised $281 million, and they were also up 27%. Again, there are no major changes in the asset composition of our balance sheet. Our funding strategy has not changed. We continue to grow local deposits and bridge the funding gap of wholesale funds, primarily brokered CDs, and federal loan bank advances. We had very strong local deposit growth throughout 2004, with local deposits up $77 million, or 25%. That was led by a $25 million growth in demand accounts, $28 million in growth in savings accounts, and $18 million in growth in certificates of deposit. Our wholesale funds were up $180 million, or 30%. Our wholesale funds to total funds at the end of 2004 equated to 67%, up slightly from the 65% where we were at the beginning of the year. However, we continue to be pleased with the level of local deposit growth in relation to our level of asset growth.

And lastly with regards to capital, the Company remains in a well-capitalized position per bank regulatory definitions, with our total risk-based capital ratio at the end of 2004 standing at 13%. Our total risk-based capital ratio did increase by about 100 basis points in the month of December when we took down an additional $16 million in trust preferred securities. That is my prepared remarks. Certainly would be happy to answer any questions in the question-and-answer session. I will now turn it over to Mike.

Thanks, Chuck. Good morning, everyone. As you have already heard from Jerry and Chuck and seen from our press release, the fourth quarter and the year 2004 was tremendous for Mercantile Bank. We continue to grow at a very robust pace, with significant new banking relationships added during the quarter, and the year. While loan growth continued as strong as ever, we are especially gratified by the growth in noninterest bearing deposits. Chuck touched upon that a little bit already, but noninterest bearing deposits were up 33% over year-end 2003 levels. I would be happy to answer any specific questions about asset quality or loan growth or anything else in regards to the growth here at the bank. But would like to state that we're very happy with the loss experience and the quality of our loan portfolio. That continues to be a cornerstone of a strength of the bank year after year. Net loan charge offs were only 1.2 million or 0.10 percent of average loans during the year. Nonperforming assets remain fairly constant and very low during the year, ending at 0.19% of total assets. Both charge-off and nonperforming loan numbers remain at or near the top of our peer group comparisons. Our presence in the Lakeshore area continues to expand at a rapid pace. The opening of our new regional center in Holland during the fourth quarter was an exciting event for us that has continued to increase our visibility in the market. Looking ahead to 2005, we continue to see an improving local economy and numerous opportunities for our bank to expand our market share in west Michigan. Again, I will be happy to answer any specific questions at the end of our remarks, but at this time I would turn it over to Bob Kaminski.

Thanks, Mike. Just a quick update on our construction projects at the bank. On October 25, 2004, Mercantile opened its new Holland Lakeshore office. This 30,000 square foot facility, Mercantile is providing a full set of banking products and services to our Allegan and Ottawa county customers. We look forward to continued growth of core loan and deposits in that region in the years to come. Work also continues on the construction of Mercantile's new downtown Grand Rapids main office at Leonard and US 131. It is expected that this office will open for business in May, and it will be able to have a grand opening in shortly there after. With that, I will turn it back over to Jerry.

Thanks, Bob. And at this point, we would be happy to answer any questions.

[Operator Instructions]. Kevin Reevey.

Good morning. Congratulations on an outstanding quarter.

Thanks, Kevin.

Chuck, I was wondering if you could go over the maturity of your brokered and wholesale deposits. I missed those numbers.

[inaudible], Kevin. In the first quarter of 2005, it is about $187 million, at 2.1%. In the second quarter, it is 150 million at 2.2%. And in the last six months, it is 260 million, at 2.60%.

Great. And then Chuck, you talked about a tax benefit that you realized in the fourth quarter, which as a result lowered your effective tax rate. Going forward, what kind of normalized tax rate would you expect?

We're expecting about 30% for 2005 and beyond.

And then on the growth in your C & I portfolio, again, was that driven by new business? Or was that driven more by line draw downs from existing customers?

This is Mike, Kevin. Still mainly driven by new business. We're seeing a little more activity from existing customers than we have the last couple of years, but we're still -- the main engine is still new customers, relationships to the bank.

Great. Thank you.

You're welcome.

Steve Covington.

Good morning, guys. Congratulations on a great year.

Thanks, Steve.

Chuck, do you have the net interest margin by month during the fourth quarter?

I don't have it with me, Steve. I will certainly tell that you it was increasing throughout the -- throughout the fourth quarter. And December was certainly higher than what it was, you know, for the average of the whole quarter. But we are -- I am expecting a decline here in the month of January. Our asset yield only gets boost in those months when there is a Federal Reserve increase, and certainly we not going to -- very likely not get one in January, but our wholesale funding costs we price almost every day. So I'm expecting a little bit of decline in January versus December. But looking out overall, like I said, we really don't provide a lot of specific guidance, but I think that we would be -- you know, we're certainly looking forward to at least a steady net interest margin in looking at the fourth quarter number. But obviously, you know the Reserve, who knows what they're going to do, and how the market rates are going to react to that.

Right. That makes sense. Also, I guess, Mike, or Jerry, was the growth that you saw during the quarter relatively balanced or was there -- was it lumpy at all?

Well, I think Chuck pointed out that a good portion of that loan growth was in December.

Okay.

It seems like that happens to us at the end of each quarter. But this year was no different. What was it, Chuck, like 40 --

40 million in December out of the 63 in total.

Okay. And then how was the growth in the Lakeshore area relative to Grand Rapids? Was the growth picking up it there?

Yeah, we've had some real good -- the last it three or four months especially, some real nice additions to the portfolio from the Lakeshore area. The Lakeshore area is up to about $80 million in loans at the end of the year. So they had a very nice year when you consider they started the year probably 47, 48 million.

That's great.

Yeah, they've done a nice job. And it it really looks good going forward.

Okay. And then I guess lastly, and you touched on the tax rate, Chuck, and I guess it is always difficult to predict those type of opportunities, but is there anything -- any more tax credit purchases that you've seen opportunities with?

Yeah, Steve, you know, we're continuing to discuss with some of our borrowers, and basically what these are is rehabilitation tax credits where borrowers go in into older facilities and rehab them, and put them back into use, and the government has several different programs that allow tax credits to be created. And in this environment, the bank has the opportunity to go and become involved in that, in that project from a tax credit standpoint, and buying those tax credits at a discounted basis. Like I said, we continue to talk to some of our other borrowers about doing these things. To my knowledge there is nothing imminent as far as anything going through the P&L at this point, at least in the next several quarters.

Steve, this is Jerry. I would like to mention about the tax credit situation as well, that this isn't some new strategy we have to lower our effective tax rate. We do this strictly as an accommodation to our customers. And we only do it if the increase in our noninterest expense is more than offset by our tax savings.

Right.

So this isn't some new way to avoid paying more taxes. It is strictly to accommodate customers who are rehabbing older facilities.

No, it makes total sense, Jerry. Okay. I think -- I guess from -- lastly, Mike, you touched on asset quality was actually improved during the quarter. Any major changes in the composition of the nonperforming loans?

No. Pretty steady. We've got a couple of loans that we've kind of battled during the course of the year. And we're working on disposing them, but the good news is that it has remained very steady. There has been no additions to those problem loans, and as you said, there has been actually some slight improvement to the portfolio overall. Very, very happy, given the recession that we are coming out of, that the numbers have remained so steady and so strong.

Well, again, congratulations on a great quarter. And a year. And keep up the great work.

Thanks, Steve.

Howell Ridley [ph].

Hello, guys. Great quarter. I would like you to tell me when you're going to have a bad quarter so I can buy some more stock.

You have to do that from jail.

You will have company from a bunch of of other people. Couple of questions. One, how many brokers are covering you guys right now, and what is the street estimate for 2005?

We have six firms that actually do written research on us. We're discussing additional research with one or two others. Chuck, do you recall what the number is?

Somewhere between $2.30 and $2.35, last I saw.

Okay. And then a couple of other questions, Chuck, how much can the bank grow with its -- with a second preferred offering plus the other offering they had in 2004? What would be your guesstimate as far as how big the bank can get before it would have to go back to the capital markets?

Yeah, I think the way we look at it, Howell, is if we continue to grow like we have from the asset base is that we will definitely get through all of this year, 2005, and a vast majority of 2006.

So it is mid- to late-2006 before you might have to go back to --

Yeah, certainly we're going to go back to the markets before we absolutely have to. so I don't think we can make it through all of 2006, but yeah, late in 2006 is the way it looks if we continue to go like we have.

One last question. Based upon your success in the Holland area, do you have any plans or thoughts or interest or desires to move up the coast a little bit into the Grand Haven, Muskegon area?

Howell, we have -- we are really are looking at a lot of different markets. This, I think as you know, from discussions that we've had in the past, and I think as most people know, as we've discussed, that we've looked at acquisitions and really have not found anything that particularly fit our model. And if the Holland model does work, we would look at replicating that -- at least potentially replicating that, not only along the coast, but maybe on the east side of the state. Northern Indiana. Our growth here in west Michigan is exceptionally strong, and we think that that will continue for a while. But we don't want to wake up three years from now, or two years and say, Uh-oh, we -- the growth isn't going to be as strong, we better find some new markets. So we're kind of doing this in anticipation of wanting to get additional growth from outside the west Michigan area, so the coast is a good target area, northern Indiana, the eastern side of the state. I don't know, Mike, if have you any --

Yeah, I would agree with those -- that would probably be the targets that I would want to look at.

The real key on this, Howell, is getting the right people. You have to get people in that community to run these stand-alone operations. And that's the real key. And I think if we -- in any market, if all of a sudden, we were presented with a cadre of exceptional people we would probably accelerate our move into a particular market we liked so that we would have these people as co-workers with us.

Yeah, you've been very successful in growing your own turf internally. And when you start going outside and buying -- making acquisitions, there is a risk -- the risks go up, and the rewards maybe go down.

You know, and no matter how good they look, you don't know until six months after you signed the deal.

They're never as good as they're sold to you and there is always a few snakes involved.

That's correct.

One very last question, you didn't mention it, Chuck, but how is the other offshoot businesses doing? The insurance and the brokerage and that type of stuff? You did mention the payroll is doing very well. How about some of those other ones?

They all continue to do very well. Broker fee income was actually kind of flat but if you remember, we received a pretty healthy commission check on the brokerage side back in 2003 because during our stock deals a lot of insiders bought, and it did go through our own internal brokerage account. But if you back that kind of one-time event off, the brokerage also has some very nice increases as well, and we continue to get some good fee income on the insurance side. As you mentioned I already touched on the payroll side.

Thanks a million, guys.

Thanks, Howell.

Thank you.

Terry McEvoy.

Good morning.

Good morning, Terry.

I was wondering if you could just comment on refinancing the trust preferred in the third quarter and what impact that had on the margin in the fourth quarter. Just kind of back of the envelope, if I look at the interest expense for long-term borrowings, it looks like sequentially it was down right about $150,000. I just want to make sure I'm looking at that correctly.

Yeah, Terry, this is Chuck. We had in the fourth quarter about a 4 or 5 basis point benefit, if you compared the third quarter with the fourth quarter. We are certainly seeing those rate goes up. As a matter of fact, that reprices -- it reprices quarterly which again is next week. Obviously, the three months LIBOR ties pretty closely with the Fed funds rate. So there is probably 4 or 5 basis points in the fourth quarter, but obviously if we compare the third quarter with the first quarter it will be a little bit less than that.

And then the cost to do that in the third quarter, how many quarters do you think it will take you to offset the expenses in Q3?

It will take about four quarters is what we're estimating, based on our projections on interest rates which we certainly think they're going to continue to go up, at least to some degree: So about a year.

And one last question. On the model it looks like -- in my model, the third quarter loan levels are a little different in the third quarter and then the fourth quarter released today about a $1.5 million. Can you just tell me what that is connected to? Is that the OREO that kind of moved, moved off OREO status in the quarter?

Yeah one of the things that we had done at the end of the third quarter when we did our release in early October is one of those problem assets that Mike already touched on a little bit. We are moving to foreclose on that property, so we thought it prudent to show it as other real estate owned, but -- because of further title work, we came upon the information and knowledge that we couldn't foreclose on it right away. That we are going to have to wait, so we put that back up into the nonperforming loans.

Thank you very much.

Thanks, Jerry.

Brad Ness.

Hi, guys. How are you doing?

Good, Brad. It wouldn't be a teleconference without you.

That's right. Hey, I just have a quick verification on this tax issue. Is this going to -- any effective tax rate or noninterest income effect going to drag over into 2005 or any other years? Or is this solely a fourth quarter event related to this issue?

It is solely a fourth quarter event. How these work is you get involved in the projects while they're doing the rehabilitation, but we do not buy the credits and do not recognize anything on our profit and loss statement until the project goes into service. When it actually is used. And it all takes place -- all the entries take place in that quarter. There is no carry-over.

And then Chuck, I believe you mentioned in the conference call that you were looking for like a 30% be effective tax rate going forward.

Yeah.

It looks like, you know, in more recent quarters and years, you were closer to 28, 29-ish. Is that -- are you assuming, you know, a little bit higher tax rate going forward?

Yeah. Yeah. A little bit more. You know, our level of tax exempt income as a percent is going down a little bit.

Okay.

Our municipal bonds and our bank loan life insurance. But 30% looks about right.

Second question here. Did you notice a big change in the duration of your interest bearing liabilities from the third quarter to the fourth quarter?

I don't think there is a really big change. I continue to, you know, go fairly far out on the CDs and federal loan bank advances. One to three years. I don't rarely -- just only kind of rarely dip below the one year.

Do you have the number of your duration in the fourth quarter?

No I don't have that handy, Brad.

Okay. And lastly here, as far as bonus accruals, are they reflected in the fourth quarter? Or are some going to spill over into the first quarter?

Nope, all bonus accruals have been fully accrued through -- for 2004 in 2004. Pretty much on a monthly basis.

Okay. Thanks guys.

Thank you, Brad.

Brad VanderPloeg.

Good morning. And I'm sure you're sick of hearing this, but I will add my congratulations.

Never get sick of that, Brad, at all.

Great quarter. Great year. A lot of my questions have been asked. But just a couple more. Can you quantify the opportunity in Holland and maybe the areas around there relative to Grand Rapids, just trying to get a feel for -- it is a smaller market, but how much smaller? It is growing pretty quickly, but I'm wondering, you know, magnitude-wise, what the opportunity is there.

You're right. It is a much smaller market. But we have found that with our style of banking that we aren't limited to just our physical location in Holland. That we're able to leverage that Lakeshore position in Holland and go up to Grand Haven and down into Allegan county, and so it is hard to put a real quantification on it, Brad, but we expect, I guess -- I will attack it from the standpoint that we expect the same kind of loan growth out of Holland percentage-wise that we have out of Grand Rapids, and that would be, you know, 20% growth on the $80 million portfolio next year, and maybe even a little bit more than that, because their denominator is a little smaller but we've found some really good opportunities. Like Grand Rapids, it is a very competitive market. We're not kidding ourselves to think we're just going to walk in there and dominate the market. But we've been very gratified with the team that we have there, and their efforts, and the reception that we've gotten, and both loans and deposits that have grown out of that location. So, you know, I don't think it is -- are we going to be a billion and a half it dollars on the Lakeshore after 7 years like we were here in Grand Rapids? Definitely not. But there is some real good opportunity there for us going forward.

Okay. Very good. Thanks. And I apologize if I missed this, but did you -- Chuck, did you touch on options expensing and what the impact there will be?

Brad, I did not touch on that. But in the numbers over the last few days, it is about 4 cents a share for the whole year of 2004.

Okay.

Which is very similar to what it's been in the last several years.

All right. Okay. That's all had. Thanks very much.

Thank you, Brad.

Once again, if you would like to ask a question, please press star, it then the number one on your telephone key pad. At this time, there are no further questions.

Thank you all very much for dialing in. If you have further questions, don't hesitate to call Chuck, Mike, Bob, or me. And we will see if we can answer them for you. Thanks again.

This concludes today's Mercantile Bank Corporation fourth quarter earnings conference call. You may now disconnect.