Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q4 2023 Earnings Presentation
37 slides from Mercantile Bank's earnings presentation, Jan 16, 2024
Slide 1: Investor Presentation January 2024
Investor Presentation January 2024
Slide 2: Executive Management Team
Executive Management Team PRESIDENT & EVP, CHIEF OPERATING OFFICER EVP, CHIEF FINANCIAL OFFICER & CHIEF EXECUTIVE OFFICER & PRESIDENT OF THE BANK TREASURER Mr. Kaminski joined the Bank in Mr. Reitsma was appointed Mr. Christmas joined the Bank in 1997 and has over 39 years of President of the Bank e
Slide 3: 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 4: Financial Performance: Fourth Quarter & Full Year 2023
Financial Performance Fourth Quarter & Full Year 2023
Slide 5: Performance Highlights
FINANCIAL PERFORMANCE Performance Highlights Full Year 2023 Highlights Non- Total Net Interest Commercial Performing Tang. Equity/ Risk-Based Margin Loan Growth Assets/ Tang. Assets* Capital Ratio* Total Assets* 4.05% 8% 0.07% 8.9% 13.7% Three Months Ended Twelve Months Ended December 31, December 3
Slide 6: Net Interest Income
FINANCIAL PERFORMANCE Net Interest Income Change in Net Interest Income QTD-over-QTD YTD-over-YTD Δ Δ 2023 increase in net interest income depicts net interest -4% +22% margin expansion and loan growth Three Months Ended Twelve Months Ended December 31, December 31, December 31, December 31, 2022 20
Slide 7: Net Interest Margin
FINANCIAL PERFORMANCE Net Interest Margin Improved net interest margin • Reflects higher interest rate environment • Proactive balance sheet management strategies such as matched funding fixed rate loans and commercial loan back-to-back interest rate swap program 4.3% 4.3% 4.1% 4.0% 3.9% 3.6% 2.7% 2
Slide 8: Yield on Assets / Cost of Funds
FINANCIAL PERFORMANCE Yield on Assets / Cost of Funds Meaningful increase in yield on loans • Increasing interest rate environment • Floating rates on over two-thirds of commercial loans Gradual increase in cost of funds • Delayed increase in deposit costs for most of 2022 • Deposit rate increases a
Slide 9: Noninterest Income
FINANCIAL PERFORMANCE Noninterest Income Notable increase in several treasury management fee income categories $10,000,000 $7,500,000 $5,000,000 $2,500,000 $0 4Q22 1Q23 2Q23 3Q23 4Q23 Other income Gain on sale of other real estate owned Earnings on bank owned life insurance Payroll services Interest
Slide 10: Noninterest Expense
FINANCIAL PERFORMANCE Noninterest Expense Stable Cost Structure • Consistent efficiency ratio • Increased but stable overheard costs: 53%* Efficiency • Higher salary costs Ratio • Higher swap collateral holding costs • Industry-wide increase in FDIC assessment rates $40,000,000 55% 50% $35,000,000 4
Slide 11: Mortgage Loan Portfolio
FINANCIAL PERFORMANCE Mortgage Loan Portfolio* Mortgage Loan Originations Mortgage Loan Sale Production $140,000 $80,000 $3,000 Income on Sales of Mortgage Loans $120,000 $2,500 $60,000 $100,000 $2,000 Saleable Loans $80,000 $40,000 $1,500 $60,000 $1,000 $40,000 $20,000 $20,000 $500 $0 $0 $0 4th Qtr
Slide 12: Asset Quality
FINANCIAL PERFORMANCE Asset Quality $4,184,000 Average Loans (in thousands) Asset quality measures remain strong $4,018,000 $4,054,000 $3,928,000 • Reflects ongoing commitment to soundly and $3,888,000 vigilantly underwrite loans and strength of borrowers • Continuing to build reserve: 8 bps increas
Slide 13: Loan Repricing
FINANCIAL PERFORMANCE Loan Repricing* The majority of total loans (71%) have a Total Loan Portfolio Rate Type floating rate Fixed Rate • 70% of commercial loans have a floating rate. Loans: 29% • 80% of fixed rate commercial loans mature within five years. • In aggregate, approximately 84% of total
Slide 14: Investment Portfolio
FINANCIAL PERFORMANCE Investment Portfolio Gains & Losses ($ in thousands) • Net unrealized losses started to increase meaningfully during the first quarter of 2022 due to the increasing interest rate environment. • Net unrealized losses (before tax) equaled $64 million as of December 31, 2023. As o
Slide 15: Investment Portfolio Maturities
FINANCIAL PERFORMANCE Investment Portfolio Maturities ($ in thousands) • Laddered maturities generally on U.S. Government agency and municipal bond segments. • Significant majority of the U.S. Government agency bonds mature within the next seven years, with over three-fourths of the municipal bonds
Slide 16: Capital Regulatory Ratios
FINANCIAL PERFORMANCE Capital Regulatory Ratios (Mercantile Bank Data) As of December 31, 2023 Actual and Adjusted* Capital Ratios vs. Requirements Tier 1 Leverage 14% As Reported Total Risk- Capital Ratio 12% Based Capital Ratio 12.2% 10% As Reported Tier 1 8% Leverage Capital Ratio Total Risk Base
Slide 17: Deposits & Sweep Accounts
FINANCIAL PERFORMANCE Deposits & Sweep Accounts Sweep Brokered Deposits Brokered Deposits Accounts 0% Sweep Accounts 4% 6% 5% Noninterest-Bearing Checking Time $100,000 30% Time $100,000 & Over & Over 6% Noninterest- 11% Bearing Checking Time Under 41% $100,000 Time Under 3% $100,000 $4.1 Billion $3
Slide 18: Large Depositors
FINANCIAL PERFORMANCE Large Depositors Includes Sweep Account Balances Depositors with over $5 million as of December 31, 2023 Total – 71 relationships aggregating $1.1 billion Business/Individual – 57 relationships aggregating $1.0 billion Governmental – 14 relationships aggregating $0.1 billion De
Slide 19: Deposit Balances
FINANCIAL PERFORMANCE Deposit Balances* Deposits comprised of mostly business accounts Personal 36% Business 64% ($ in thousands) December 31, 2023 December 31, 2022 Personal Business Personal Business Noninterest-Bearing Checking $ 208,800 1,038,000 241,300 1,364,800 Interest Checking $ 201,300 434
Slide 20: 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 $ 429,000 Unpledged Investments $ 387,000 20 *As of December 31, 2023.
Slide 21: Thoughts on 2024
FINANCIAL PERFORMANCE Thoughts on 2024 Prime/SOFR Rates • 25 basis point reduction in both July and October 2024 Performance Metrics 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Loan Growth 4.00% – 6.00% 4.00% – 6.00% 4.00% – 6.00% 4.00% – 6.00% Net Interest 3.70% – 3.80% 3.70% – 3.80% 3.70% – 3.
Slide 22: Strong Credit Culture: Diversified Lending
Strong Credit Culture Diversified Lending
Slide 23: Total Loans
STRONG CREDIT CULTURE Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,254,600 29% Real Estate – NonOwner Occupied $ 1,035,700 24% Real Estate – Owner Occupied $ 717,700 17% Real Estate – Multi-Family & Residential Rental $ 332,600 8% Real Estate – Land
Slide 24: Asset Quality Metrics
STRONG CREDIT CULTURE Asset Quality Metrics 7 bps* Nonperforming Quarter Trends ($ in thousands) Assets to Total Assets 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 Net loan charge-offs (recoveries) $ (200) (100) 0 200 0 (100) Net loan charge-offs (recoveries) (0.03%) (0.01%) 0 0.02% 0 <0.01% t
Slide 25: Core Commercial Loan Growth
STRONG CREDIT CULTURE Core Commercial Loan Growth ($ in millions) Five Quarter Loan Growth Trends Core Commercial Loans $3,500 $3,415 8% $3,400 Commercial loan $3,300 $3,238 $3,206 growth in 2023 $3,200 $3,148 $3,158 $3,100 $3,000 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Five Year Annual Loan Growth Trend
Slide 26: Lending Commitments
STRONG CREDIT CULTURE Lending Commitments ($ in millions) 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 Construction Loans Commercial $ 197 285 327 379 311 Residential $ 72 58 59 54 46 Commitments to Make Loans* $ 330 347 351 288 262 Total $ 599 690 737 721 619 *Commitments to make loans generally refle
Slide 27: Commercial Loan Portfolio Composition
STRONG CREDIT CULTURE Composition Commercial Loan Portfolio * Loan Type Commercial Industry Real Estate - Wholesale Trade Retail Trade Transportation Commercial Multi-Family & Real Estate - 5% 6% & Warehousing Residential Non-Owner Manufacturing 1% Rental Occupied 10% 19% 30% Information <1% Constru
Slide 28: Commercial Loans Rate Type
STRONG CREDIT CULTURE Rate Type Commercial Loans* ($ in thousands) Rate Type Breakdown Balance 32% Floating Rate Commercial Loans $ 2,321,000 68% Fixed Rate Commercial Loans $ 1,094,300 Total Commercial Loans $ 3,415,300 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of December 31,
Slide 29: 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 $ - - 0.2 0.2 1,254.4 1,254.6 - Vacant Land, Land D
Slide 30: Past Due Loans Trend
STRONG CREDIT CULTURE Past Due Loans $8.0 4 bps* Past Due Loans $7.0 as % of $6.0 Total Loans $5.0 Millions $4.0 $3.0 $2.0 $1.0 $0.0 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruing *As of December
Slide 31: FDIC Commercial Real Estate Lending Concentration Guideline
STRONG CREDIT CULTURE FDIC Commercial Real Estate Lending Concentration Guideline Commercial Real Estate Loans / Total Regulatory Capital Generally not to exceed 300% 300% 290% 280% 270% 260% 250% 240% 230% 220% 210% 200% 31
Slide 32: Non-Owner Occupied Commercial Real Estate Lending
STRONG CREDIT CULTURE Non-Owner Occupied Commercial Real Estate Lending* 6% 6% 6% Non-Owner Office Occupied CRE 3% Retail As % of Total Loans Industrial 2% Hotel 1% Assisted Living Other NOO CRE Remainder of Remainder of Commercial Loans Loan Portfolio Percentage Percentage ($ in thousands) Balance
Slide 33: Company Overview
Company Overview
Slide 34: Company Overview
COMPANY OVERVIEW • Is the largest bank headquartered in the state of MI. • Was founded in 1997 in Grand Rapids, MI. • Has more than 600 employees & 43 locations. • Offers more than 75 products & services supporting commercial, business, governmental, educational, nonprofit, treasury & personal banki
Slide 35: Strategic Initiatives
COMPANY OVERVIEW Strategic Initiatives LEVERAGE DIGITAL PEOPLE & RISK & INVESTMENTS DELIVERY CULTURE PROCESS • Expand usage of Treasury • Expand customer utilization • Recruit and retain top talent • Maintain dynamic Enterprise Management products and of digital banking services and develop emerging
Slide 36: Forward Progress: ESG and DEI
COMPANY OVERVIEW Forward Progress ESG DEI Environmental, Social & Governance Diversity, Equity & Inclusion • Engaged and active ESG Committee with Board Governance • 33% gender, racial and ethnic diversity on Board of Directors. Committee oversight. • All team members have access to enriching learni
Slide 37: 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