The earnings report from Grand Rapids, Mich.-based Mercantile Bank Corp. on Wednesday should serve as a shot across the bow in terms of what may be expected from most financial institutions with significant mortgage exposure. Mercantile, one of the first banks to report fourth quarter earnings, said that net income fell a jaw-dropping 98 percent to $0.1 million, versus $4.6 million in the year-ago period. 2007 earnings registered just $9.0 million as a result, a decline of 55 percent from $19.8 million in 2006. Forcing the drop in earnings were what the bank called "signs of weakness" is its loan portfolio, over 70 percent of which is supported by real estate. Provision for loan and lease losses was $11.1 million for 2007, Mercantile said, up $5.3 million from the $5.8 million reported for 2006. Nonperforming assets increased to $35.7 million by the end of the fourth quarter, up dramatically from $9.6 million one year earlier. Chairman and CEO Michael Price noted that NPAs accounted for $14.9 million of the bank's $150 million residential construction portfolio, and $20.8 million of its $1.5 billion commercial loan portfolio. "Our residential real estate market continues to deteriorate, with lower sales prices and a growing inventory of houses," said Price. "Real estate problems, especially in a depressed economy such as in Michigan, are not easily or quickly resolved," he said, although he noted that Mercantile is "moving forward" despite what he characterized as an uncertain market for 2008. Disclosure: When this post was published, the author held no positions in MBWM. Update: For those of you pooh-poohing Mercantile's results because they're in Michigan, you might want to consider the bomb dropped by West Coast Bancorp yesterday: $30 million in a loan loss provision to cover expected losses in its $263 million 'two-step' residential contruction loan portfolio, and a quarterly loss. West Coast operates in Oregon and Washington, worlds apart from the housing market in Michigan and Ohio.