Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q3 2024 Earnings Presentation
41 slides from Mercantile Bank's earnings presentation, Oct 15, 2024
Slide 1: Investor Presentation
Investor Presentation October 2024
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipates,” “intends,” “plans,”
Slide 3: Executive Management Team
Executive Management Team PRESIDENT & EVP, CHIEF FINANCIAL OFFICER & CHIEF EXECUTIVE OFFICER TREASURER Mr. Reitsma was appointed Mr. Christmas joined the Bank in President and Chief Executive 1998 and has over 37 years of Officer of the Bank effective June 1, banking experience. Before being 2024, a
Slide 4: Financial Performance
Financial Performance Third Quarter 2024
Slide 5: Performance Highlights
FINANCIAL PERFORMANCE Performance Highlights • Net income of $19.6MM in 3Q24 versus $20.9MM in 3Q23 Earnings • EPS of $1.22 in 3Q24 versus $1.30 in 3Q23 • Net interest margin of 3.52% in 3Q24 versus 3.98% in 3Q23 Net Interest • Increased asset yield attributed to high percentage of floating rate loa
Slide 6: Shareholder Value
FINANCIAL PERFORMANCE Shareholder Value Strong earnings and relative size of investment portfolio mitigated impact of unrealized losses on tangible book value per share during increasing rate environment $40 After Tax Net Unrealized $30 Gain/(Loss) per share $20 TBV per common share $10 excluding af
Slide 7: Profitability Metrics
FINANCIAL PERFORMANCE Profitability Metrics • Solid profitability metrics • Third quarter ROAA impacted by deposit growth strategy and margin normalization • Third quarter ROAE impacted by increased equity driven by solid earnings and decrease in unrealized losses on investments Quarterly Quarterly
Slide 8: Loan to Deposit Ratio
FINANCIAL PERFORMANCE Loan to Deposit Ratio* Reduction of 800 basis points from the beginning of the year • Driven by robust local deposit growth • Includes $45 million reduction in brokered deposits 112% $5,500 110% 110% 108% 108% 107% In millions 106% $4,500 104% 102% 102% 100% $3,500 4Q23 1Q24 2Q
Slide 9: Net Interest Income
FINANCIAL PERFORMANCE Net Interest Income Stable net interest income Increased interest income primarily reflects loan growth but also higher interest rate environment $50 $100 $5.0 Loans ($ in billions) Interest Income $40 $4.5 ($ in millions) $80 $ in millions $4.0 $30 $60 $3.5 $20 $40 $3.0 $20 $2
Slide 10: Net Interest Margin
FINANCIAL PERFORMANCE Net Interest Margin Stable net interest margin 4.3% 4.3% 4.1% 4.0% 3.9% • Proactive balance sheet management 3.6% 3.7% 3.6% 3.5% strategies such as matched funding fixed rate commercial loans and commercial loan back-to-back interest rate swap program • Linked quarter margin co
Slide 11: Yield on Assets / Cost of Funds
FINANCIAL PERFORMANCE Yield on Assets / Cost of Funds Meaningful increase in yield on assets quarter over quarter • Higher interest rate environment • Floating rates on over two-thirds of commercial loans • Re-priced maturing fixed rate loans and investments Gradual increase in cost of funds • Depos
Slide 12: Noninterest Income
FINANCIAL PERFORMANCE Noninterest Income Notable increases in mortgage banking income $10,000,000 $7,500,000 $5,000,000 $2,500,000 $0 3Q23 4Q23 1Q24 2Q24 3Q24 Other income Earnings on bank owned life insurance Payroll services Interest rate swap income Credit and debit card income Mortgage banking i
Slide 13: Interest Rate Scenarios
FINANCIAL PERFORMANCE Interest Rate Scenarios* $20,000 10.0% 8.0% $15,000 6.0% $10,000 $ Change in thousands 4.0% % Change in NII $5,000 2.0% $- 0.0% -2.0% $(5,000) -4.0% $(10,000) -6.0% $(15,000) -8.0% $(20,000) -10.0% Down Down Down Up Up Up 300 bps 200 bps 100 bps 100 bps 200 bps 300 bps Projecte
Slide 14: Noninterest Expense
FINANCIAL PERFORMANCE Noninterest Expense 56%* Efficiency Ratio Increased Salary and Benefit Costs but Overall Stable Cost Structure $40,000,000 60% 55% $35,000,000 50% $30,000,000 45% 40% $25,000,000 35% $20,000,000 30% 25% $15,000,000 20% $10,000,000 15% 10% $5,000,000 5% $0 0% 3Q23 4Q23 1Q24 2Q24
Slide 15: Mortgage Loan Portfolio
FINANCIAL PERFORMANCE Mortgage Loan Portfolio* Mortgage Loan Originations Mortgage Loan Sale Production $180,000 $140,000 $4,000 Income on Sale of Mortgage Loans $160,000 $120,000 $3,500 $140,000 $3,000 $100,000 $120,000 Loans originated with intent to sell $2,500 $100,000 $80,000 $2,000 $80,000 $60
Slide 16: Asset Quality
FINANCIAL PERFORMANCE Asset Quality Average Loans (in millions) $4,467 Asset quality measures remain strong $4,396 $4,299 • Reflects ongoing commitment to soundly and $4,184 vigilantly underwrite and administer loans and $4,054 strength of borrowers • Continuing to build reserve 3rd Qtr 4th Qtr 1st
Slide 17: Loan Repricing
FINANCIAL PERFORMANCE Loan Repricing* Total Loan Portfolio Repricing Breakdown The majority of total loans (74%) have a floating rate, shortening balance sheet Over 5 Years duration and aligning with funding sources 12% • 73% of commercial loans have a floating rate. 0 – 12 Months • 81% of fixed rat
Slide 18: Investment Portfolio Unrealized Gains & Losses
FINANCIAL PERFORMANCE Investment Portfolio Unrealized Gains & Losses ($ in thousands) • Due to the increasing interest rate environment, net unrealized losses started to increase meaningfully during the first quarter of 2022, peaking in September 2022 ($92 million before tax). • Net unrealized losse
Slide 19: Regulatory Capital Ratios
FINANCIAL PERFORMANCE Regulatory Capital Ratios (Mercantile Bank Data) Tier 1 Leverage Capital Ratio Actual and Adjusted* Capital Ratios vs. Requirements 12.0% 14% As Reported Total Risk- Total Risk Based 12% Based Capital Ratio Capital Ratio 10% As Reported Tier 1 8% Leverage Capital Ratio 13.9% 6%
Slide 20: Deposits & Sweep Accounts
FINANCIAL PERFORMANCE Deposits & Sweep Accounts Robust deposit growth in money market and time deposit accounts and reduction in brokered deposits $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 4Q23 1Q24 2Q24 3Q24 Money Market Nonintere
Slide 21: Large Depositors
FINANCIAL PERFORMANCE Large Depositors Includes Sweep Account Balances Stable Large Depositor Base Depositors with over $5 million as of September 30, 2024 Total – 80 relationships aggregating $1.5 billion Business/Individual – 63 relationships aggregating $1.2 billion Governmental – 17 relationship
Slide 22: Deposit Balances
FINANCIAL PERFORMANCE Deposit Balances Personal Deposits comprised of mostly business accounts* 33% Business 67% ($ in thousands) December 31, 2023 September 30, 2024 Personal Business Personal Business Noninterest-Bearing Checking $ 208,800 1,038,900 191,700 990,500 Interest Checking $ 201,300 434,
Slide 23: Sources of Liquidity
FINANCIAL PERFORMANCE Sources of Liquidity* Source Availability ($ in thousands) Unsecured Federal Funds Lines of Credit $ 70,000 FHLB of Indianapolis Advance Program $ 607,000 Unpledged Investments $ 324,000 Federal Reserve Discount Window $ 158,000 *As of September 30, 2024. 23
Slide 24: Thoughts on Remainder of 2024
FINANCIAL PERFORMANCE Thoughts on Remainder of 2024 Prime/SOFR Rates • 25 basis point reduction effective November 7 & December 18, 2024 2024 Performance Metrics 4th Quarter Loan Growth 4.00% – 6.00% Net Interest Margin 3.35% – 3.45% Fee Income $9.0MM – $10.0MM Overhead Costs $31.5MM – $32.5MM Feder
Slide 25: Strong Credit Culture
Strong Credit Culture Diversified Lending
Slide 26: Total Loans
STRONG CREDIT CULTURE Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,312,800 29% Real Estate – NonOwner Occupied $ 1,096,000 24% Real Estate – Owner Occupied $ 746,700 16% Real Estate – Multi-Family & Residential Rental $ 426,400 9% Real Estate – Land
Slide 27: Asset Quality Metrics
STRONG CREDIT CULTURE Asset Quality Metrics 17 bps* Nonperforming Quarter Trends ($ in thousands) Assets to Total Assets 9/30/23 12/31/23 3/31/24 6/30/24 9/30/24 Net loan charge-offs (recoveries) $ 0 (100) (400) (300) (100) Net loan charge-offs (recoveries) to 0 (0.01%) (0.04%) (0.02%) (0.01%) avera
Slide 28: Core Commercial Loan Growth
STRONG CREDIT CULTURE Core Commercial Loan Growth ($ in millions) Five Quarter Loan Growth Trends Core Commercial Loans $3,700 $3,648 13% $3,600 $3,500 $3,533 $3,430 Commercial loan $3,400 $3,415 growth in the third $3,300 $3,238 quarter of 2024 $3,200 (Annualized) $3,100 $3,000 Sep-23 Dec-23 Mar-24
Slide 29: Lending Commitments
STRONG CREDIT CULTURE Lending Commitments ($ in millions) 9/30/23 12/31/23 3/31/24 6/30/24 9/30/24 Construction Loans Commercial $ 379 311 362 320 241 Residential $ 54 46 40 37 34 Commitments to Make Loans* $ 288 262 235 255 236 Total $ 721 619 637 612 511 *Commitments to make loans generally reflec
Slide 30: Composition - Commercial Loans
STRONG CREDIT CULTURE Composition - Commercial Loans* Loan Type Commercial Industry Real Estate - Wholesale Trade Commercial Multi-Family & Retail Trade 6% Transportation & 5% Warehousing 2% Real Estate - Residential Rental Manufacturing Non-Owner 18% Information Occupied 12% <1% 30% Construction Fi
Slide 31: Composition – Auto Related Commercial Loans
STRONG CREDIT CULTURE Composition – Auto Related Commercial Loans* Auto Related Loans Percent of Balance of Auto Related Loans Total Commercial Loans ($ in millions) $4,000 100% 90% $3,500 80% $3,000 70% $2,500 60% $2,000 50% 40% $1,500 30% $1,000 20% $500 10% $0 0% 3Q23 4Q23 1Q24 2Q24 3Q24 3Q23 4Q2
Slide 32: Rate Type - Commercial Loans
STRONG CREDIT CULTURE Rate Type - Commercial Loans * ($ in thousands) Rate Type Breakdown Balance 27% Floating Rate Commercial Loans $ 2,675,000 73% Fixed Rate Commercial Loans $ 973,300 Total Commercial Loans $ 3,648,300 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of September 30
Slide 33: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans Commercial & Retail Past Due Loans* ($ in millions) Recorded 30 – 59 60 – 89 > 89 Balance Total Total Days Days Days Current > 89 Days Past Due Loans Past Due Past Due Past Due & Accruing Commercial & Industrial $ - - 4.8 4.8 1,308.0 1,312.8 - Vacant Land, Land D
Slide 34: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans $8.0 13 bps* Past Due Loans $7.0 as % of $6.0 Total Loans $5.0 Millions $4.0 $3.0 $2.0 $1.0 $0.0 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 9/30/24 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruing *As of Septembe
Slide 35: FDIC Commercial Real Estate Lending Concentration Guideline
STRONG CREDIT CULTURE FDIC Commercial Real Estate Lending Concentration Guideline Commercial Real Estate Loans / Total Regulatory Capital Generally not to exceed 300% 300% 290% 280% 270% 260% 250% 240% 230% 220% 210% 200% 30-Sep-2023 31-Dec-2023 31-Mar-2024 30-Jun-2024 30-Sep-2024 35
Slide 36: Non-Owner Occupied Commercial Real Estate Lending
STRONG CREDIT CULTURE Non-Owner Occupied Commercial Real Estate Lending* Current NOO CRE Composition Historical NonPerforming NOO CRE (ending balance, $ in thousands) Industrial 6% $1,000 6% $900 Office $800 6% $700 $600 Retail 3% $500 2% $400 Hotel 1% $300 $200 Total Loan Portfolio $100 Assisted Li
Slide 37: Company Overview
Company Overview
Slide 38: Company Overview
COMPANY OVERVIEW • One of the largest banks headquartered in Michigan • Founded in 1997 in Grand Rapids, MI. • $5.9 billion in total assets • More than 650 employees & over 40 locations. • Offers more than 75 products & services supporting commercial, business, governmental, educational, nonprofit,
Slide 39: Strategic Areas of Focus
COMPANY OVERVIEW Strategic Areas of Focus Client People & Risk Growth Efficiency Experience Culture Management • Deploy new • Increase local • Weave DEI • Deploy data • Maintain and client deposits principles analytics and enhance existing onboarding and throughout robotic process credit culture • B
Slide 40: ESG and DEI Forward Progress
COMPANY OVERVIEW Forward Progress ESG DEI Environmental, Social & Governance Diversity, Equity & Inclusion • Dedicated Corporate Sustainability Committee with Board • 50% gender, racial and ethnic diversity on the Corporate Governance Committee oversight Board of Directors • Enterprise risk manageme
Slide 41: Product Offering
COMPANY OVERVIEW Product Offering Highly competitive commercial and retail capabilities. PEER PRODUCT MBWM BAC JPM FITB CMA Autobooks for Small Business with Electronic Invoicing & Receivables Bill Payment & ACH Cash Management Credit Card Rewards Electric Vehicle Car