Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q4 2024 Earnings Presentation
40 slides from Mercantile Bank's earnings presentation, Jan 21, 2025
Slide 1: Investor Presentation
Investor Presentation January 2025
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 President Mr. Christmas joined Mercantile in and Chief Executive Officer of 1998 and has over 37 years of banking Mercantile effective June 1, 2024, experience. Before bei
Slide 4: Financial Performance
Financial Performance 2024 mm WK
Slide 5: Performance Highlights
FINANCIAL PERFORMANCE Performance Highlights • Net income of $79.6MM in 2024 versus $82.2MM in 2023 Earnings • EPS of $4.93 in 2024 versus $5.13 in 2023 • Net interest margin of 3.58% in 2024 versus 4.05% in 2023 • Increased asset yield attributed to high percentage of floating rate commercial Net I
Slide 6: Historical Trends & Shareholder Value
FINANCIAL PERFORMANCE Historical Trends & Shareholder Value Solid Earnings and Balance Sheet Growth Trends Total Assets Total Loans Total Deposits 10.7% CAGR 10.0% CAGR 11.8% CAGR $7 $5 4.6 $5 4.7 6.1 4.3 5.4 3.9 4.1 3.9 $6 5.3 3.7 4.9 $4 3.5 $4 3.4 $5 4.4 3.2 2.9 2.7 Billions Billions Billions 3.6
Slide 7: Loan to Deposit Ratio
FINANCIAL PERFORMANCE Loan to Deposit Ratio* Reduction from 110% at the beginning of the year to 98% at year end 2024 • Driven by robust local deposit growth • Includes 7% loan growth and $20 million reduction in brokered deposits $5,500 111% 110% 109% 108% 107% 107% 105% (In millions) $4,500 103% 1
Slide 8: 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 $5.5 $5.6 $50 $100 $5.1 $5.2 $4.9 Assets ($ in billions) $49 $48 $48 $47 $5 Interest Income $47 $40 ($ in millions) $80 $6 $8 $9 $5
Slide 9: Net Interest Margin
FINANCIAL PERFORMANCE Net Interest Margin Stabilizing net interest margin 3.9% 3.7% 3.6% 3.5% 3.4% • Proactive balance sheet management strategies such as matched funding fixed rate commercial loans and commercial loan back-to-back interest rate swap program • Year over year margin contraction 4th Q
Slide 10: Yield on Assets / Cost of Funds
FINANCIAL PERFORMANCE Yield on Assets / Cost of Funds Meaningful increase in yield on assets year over year • Higher interest rate environment • Floating rates on 74% of commercial loans • Re-priced maturing fixed rate loans and investments Gradual increase in cost of funds • Change in funding mix t
Slide 11: Interest Rate Scenarios
FINANCIAL PERFORMANCE Interest Rate Scenarios* $100 50% $80 40% $60 30% $40 20% $ Change in millions % Change in NII $20 10% $- 0% $(20) (10%) $(40) (20%) $(60) (30%) $(80) (40%) $(100) (50%) Down Down Down Down Up Up Up 400 bps 300 bps 200 bps 100 bps 100 bps 200 bps 300 bps Projected $ Change in $
Slide 12: Noninterest Income
FINANCIAL PERFORMANCE Noninterest Income 26% increase in noninterest income in 2024 $10,000,000 $7,500,000 $5,000,000 $2,500,000 $0 4Q23 1Q24 2Q24 3Q24 4Q24 Other income (+32%) Earnings on bank owned life insurance (+70%) Payroll services (+22%) Interest rate swap income (-19%) Credit and debit card
Slide 13: 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 (in thousands) $160,000 $3,500 Loans originated with intent to sell $120,000 $140,000 $3,000 $100,000 $120,000 (in thousands) $2,500 (In t
Slide 14: Noninterest Expense
FINANCIAL PERFORMANCE Noninterest Expense 58%* Efficiency Ratio Increased Salary and Benefit Costs but Overall Stable Cost Structure 56% 58% $40M 53% 51% 52% 60% $35M 50% $30M 40% $25M $20M 30% $15M 20% $10M 10% $5M $0M 0% 4Q23 1Q24 2Q24 3Q24 4Q24 Other expense (-2%) Data processing costs (+19%) Fur
Slide 15: Asset Quality
FINANCIAL PERFORMANCE Asset Quality Average Loans $4.6B Asset quality measures remain strong $4.5B $4.4B • Reflects ongoing commitment to soundly and $4.3B vigilantly underwrite and administer loans and $4.2B strength of borrowers • Continuing to build reserve 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Slide 16: Loan Repricing
FINANCIAL PERFORMANCE Loan Repricing* Total Loan Portfolio Repricing Breakdown The majority of total loans (75%) have a floating rate, shortening balance sheet Over 5 Years duration and aligning with funding sources 11% • 74% of commercial loans have a floating rate. 0 – 12 • 81% of fixed rate comme
Slide 17: Investment Portfolio
FINANCIAL PERFORMANCE Investment Portfolio Unrealized Gains & Losses ($ 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 18: Regulatory Capital Ratios
FINANCIAL PERFORMANCE Regulatory Capital Ratios (Mercantile Bank Data) Tier 1 Leverage Capital Ratio Actual and Adjusted* Capital Ratios vs. Requirements 11.9% 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 19: 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 4Q24 Money Market (+58
Slide 20: Large Depositors
FINANCIAL PERFORMANCE Large Depositors Includes Sweep Account Balances Stable Large Depositor Base Depositors with over $5 million as of December 31, 2024 Total – 81 relationships aggregating $1.4 billion Business/Individual – 61 relationships aggregating $1.2 billion Governmental – 20 relationships
Slide 21: Deposit Balances
FINANCIAL PERFORMANCE Deposit Balances Personal Deposits comprised primarily of business accounts* 33% Business 67% ($ in thousands) December 31, 2023 December 31, 2024 Personal Business Personal Business Noninterest-Bearing Checking $ 208,800 1,038,900 194,300 1,070,200 Interest Checking $ 201,300
Slide 22: 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 $ 637,000 Unpledged Investments $ 374,000 Federal Reserve Discount Window $ 153,000 *As of December 31, 2024. 22
Slide 23: Thoughts on 2025
FINANCIAL PERFORMANCE Thoughts on 2025 Prime/SOFR Rates • No Changes 2025 Performance Metrics 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Loan Growth 5.00% – 7.00% 5.00% – 7.00% 5.00% – 7.00% 5.00% – 7.00% Net Interest Margin 3.40% – 3.50% 3.40% – 3.50% 3.40% – 3.50% 3.40% – 3.50% Fee Income $9.
Slide 24: Strong Credit Culture
Strong Credit Culture Diversified Lending
Slide 25: Total Loans
STRONG CREDIT CULTURE Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,287,300 28% Real Estate – NonOwner Occupied $ 1,128,400 25% Real Estate – Owner Occupied $ 748,900 16% Real Estate – Multi-Family & Residential Rental $ 475,800 10% Real Estate – Lan
Slide 26: Asset Quality Metrics
STRONG CREDIT CULTURE Asset Quality Metrics 9 bps* Nonperforming Quarter Trends ($ in thousands) Assets to Total Assets 12/31/23 3/31/24 6/30/24 9/30/24 12/31/24 Net loan charge-offs (recoveries) $ (100) (400) (300) (100) 3,600 Net loan charge-offs (recoveries) to (0.01%) (0.04%) (0.02%) (0.01%) 0.3
Slide 27: Core Commercial Loan Growth
STRONG CREDIT CULTURE Core Commercial Loan Growth ($ in millions) Five Quarter Loan Growth Trends Core Commercial Loans $3,800 $3,707 9% $3,700 $3,648 $3,600 $3,533 Commercial loan $3,500 growth in 2024 $3,415 $3,430 $3,400 $3,300 $3,200 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Five Year Annual Loan Growt
Slide 28: Lending Commitments
STRONG CREDIT CULTURE Lending Commitments ($ in millions) 12/31/23 3/31/24 6/30/24 9/30/24 12/31/24 Construction Loans Commercial $ 311 362 320 241 245 Residential $ 46 40 37 34 30 Commitments to Make Loans* $ 262 235 255 236 296 Total $ 619 637 612 511 571 *Commitments to make loans generally refle
Slide 29: Composition - Commercial Loans
STRONG CREDIT CULTURE Composition - Commercial Loans* Loan Type Commercial Industry Real Estate - Wholesale Trade Multi-Family & Retail Trade 6% Transportation & Commercial 4% Warehousing 1% Real Estate - Residential Manufacturing Non-Owner Rental 18% Information Occupied 13% <1% 30% Construction 6%
Slide 30: 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% $0 0% 4Q23 1Q24 2Q24 3Q24 4Q24 4Q23 1Q2
Slide 31: Rate Type - Commercial Loans
STRONG CREDIT CULTURE Rate Type - Commercial Loans * ($ in thousands) Rate Type Breakdown Balance 26% Floating Rate Commercial Loans $ 2,743,400 74% Fixed Rate Commercial Loans $ 963,900 Total Commercial Loans $ 3,707,300 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of December 31,
Slide 32: 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 $ - - 0.9 0.9 1,286.4 1,287.3 - Vacant Land, Land D
Slide 33: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans 9 bps* Past Due Loans $8.0 as % of $7.0 Total Loans $6.0 $5.0 Millions $4.0 $3.0 $2.0 $1.0 $0.0 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 9/30/24 12/31/24 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruing *As of December
Slide 34: 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% 12/31/2023 3/31/2024 6/30/2024 9/30/2024 12/31/2024 34
Slide 35: 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 7% $1,000 6% $900 Office $800 $700 5% $600 Retail $500 3% 2% $400 Hotel 1% $300 $200 Total Loan Portfolio $100 Assisted Li
Slide 36: Company Overview
Company Overview
Slide 37: Company Overview
COMPANY OVERVIEW • One of the largest banks headquartered in Michigan • Founded in 1997 in Grand Rapids, MI. • $6.0 billion in total assets. • More than 650 employees & over 40 locations. • Offers more than 75 products & services supporting commercial, business, governmental, educational, nonprofit,
Slide 38: 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 39: ESG and DEI
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 40: 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