Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q3 2023 Earnings Presentation
39 slides from Mercantile Bank's earnings presentation, Oct 17, 2023
Slide 1: Investor Presentation Third Quarter 2023
Investor Presentation Third Quarter 2023 MERCANTILE BANK CORPORATION | 1
Slide 2: Forward-Looking Statements
Company Overview 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,” “i
Slide 3: Executive Management Team
Company Overview Executive Management Team Robert B. Kaminski, Jr. Raymond E. Reitsma Charles E. Christmas President & EVP, Chief Operating Officer EVP, Chief Financial Officer Chief Executive Officer & President of the Bank & Treasurer Mr. Kaminski joined the Mr. Reitsma was Mr. Christmas joined th
Slide 4: Financial Performance Third Quarter 2023
AMercantile Bank Corporation Financial Performance Third Quarter 2023 D
Slide 5: Performance Highlights
Performance Financial A Commitment to Excellence Performance Highlights As of September 30, 2023 NASDAQ: • Significant increase in net interest income depicting net interest margin MBWM stability and loan growth • Notable increases in several key fee income categories MARKET CAP • Ongoing strength i
Slide 6: Third Quarter Highlights
Performance Financial Performance Highlights Third Quarter Highlights Non- Commercial Total Net Interest performing Tang. Equity/ Loan Growth Risk-Based Margin Assets/ Tang. Assets (Annualized) Capital Ratio Total Assets 3.98% 4% 0.11% 8.3% 14.2% Three Months Ended Nine Months Ended September 30, Se
Slide 7: Net Interest Income
Performance Financial Net Interest Income Change in Net Interest Income QTD-over-QTD Δ YTD-over-YTD Δ Increase in net interest income depicts net interest margin expansion and loan growth +16% +35% Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2022 2023
Slide 8: Net Interest Margin
Performance Financial 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% 3.6% 2.7% 2.7% 2
Slide 9: Yield on Assets / Cost of Funds
Performance Financial Yield on Assets / Cost of Funds Meaningful increase in yield on loans • Increasing interest rate environment • Floating rates on approximately two-thirds of commercial loans Gradual increase in cost of funds • Delayed increase in deposit costs for most of 2022 • Deposit rate in
Slide 10: Noninterest Income
Performance Financial Noninterest Income Growth in several fee income categories Increase primarily resulted from higher mortgage banking income and the successful marketing of products and services to existing and new customers. $ 9,246,000 524,000 391,000 422,000 $ 7,280,000 591,000 487,000 27,000
Slide 11: Noninterest Expense
Performance Financial Noninterest Expense Stable Cost Structure • Improved efficiency ratio • Increased overheard costs primarily due to: 50%* • Larger salary costs Efficiency • Industry-wide increase in FDIC assessment rates Ratio • Mercantile Bank Foundation contributions • Higher swap collateral
Slide 12: Mortgage Loan Portfolio
Performance Financial Mortgage Loan Portfolio* Mortgage Loan Originations Mortgage Loan Sale Production Stable mortgage loan originations in the third Increase in saleable loans as the customers quarter moved towards fixed rate options $80,000 $3,000 $180,000 Income on Sales of Mortgage Loans 2,400
Slide 13: Asset Quality
Performance Financial Asset Quality Average Loans (in thousands) Net loan charge-offs (recoveries) Asset quality measures remain strong to average loans $4,054,000 $4,018,000 • Reflects ongoing commitment to soundly and $3,928,000 vigilantly underwrite loans and strength of $3,888,000 borrowers $3,8
Slide 14: Loan Repricing
Performance Financial Loan Repricing* The majority of total loans (69%) have a Total Loan Portfolio Rate Type floating rate • Approximately two-thirds of commercial Fixed Rate Loans: loans have a floating rate, while about 81% 31% of fixed rate commercial loans mature within five years. Variable Rat
Slide 15: Investment Portfolio Gains & Losses
Performance Financial Investment Portfolio Gains & Losses ($ 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 $93 million as of September 30, 2023. As
Slide 16: Investment Portfolio Maturities
Performance Financial Investment Portfolio Maturities ($ 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 17: Capital Regulatory Ratios
Performance Financial Capital Regulatory Ratios (Mercantile Bank Data) Tier 1 Leverage Actual and Adjusted* Capital Ratios vs. Requirements Capital Ratio 14% 12.0% As Reported Total Risk- 12% Based Capital Ratio 10% As Reported Tier 1 Leverage Total Risk Based 8% Capital Ratio Capital Ratio 6% Total
Slide 18: Deposits & Sweep Accounts
Performance Financial Deposits & Sweep Accounts Brokered Deposits Brokered Deposits Sweep Accounts Sweep Accounts 3% 0% 4% 5% Time $100,000 Noninterest-Bearing & Over Checking Time $100,000 & Over 10% 32% 6% Noninterest- Time Under Bearing Checking Time Under 41% $100,000 $100,000 4% 3% $4.1 Billion
Slide 19: Large Depositors
Performance Financial Large Depositors Includes Sweep Account Balances Depositors with over $5 million as of September 30, 2023 Total – 75 relationships aggregating $1.2 billion Business/Individual – 61 relationships aggregating $1.0 billion Governmental – 14 relationships aggregating $0.2 billion D
Slide 20: Deposit Balances
Performance Financial Deposit Balances Personal • Deposits comprised of mostly business accounts 35% Business • $135 million increase in business deposit accounts in 65% the third quarter ($ in thousands) September 30, 2023 December 31, 2022 Personal Business Personal Business Noninterest-Bearing Ch
Slide 21: Sources of Liquidity
Performance Financial Sources of Liquidity* Availability Source ($ in thousands) Unsecured Federal Funds Lines of Credit $ 70,000 FHLB of Indianapolis Advance Program $ 424,000 Unpledged Investments $ 322,000 *As of September 30, 2023. 21
Slide 22: Thoughts on Remainder of 2023
Performance Financial Thoughts on Remainder of 2023 Prime/SOFR Rates • No further changes during the remainder of 2023 Fourth Quarter Performance Metrics Loan Growth 5.00% – 6.00% Net Interest Margin 3.85% – 3.95% Fee Income $7.5M – $8.0M Overhead Costs $28.0M – $29.0M Federal Tax Rate 19.75% 22
Slide 23: Diversified Lending
Diversified Lending Mercantile has worked continuously since the end of the Great Recession to place itself in a position of strength regardless of the economic conditions. Our loan portfolio has been built through the cultivation and development of deep mutually beneficial client relationships. Loa
Slide 24: Strong Credit Culture: Total Loans
Strong Credit Culture Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,166,200 28% Real Estate – NonOwner Occupied $ 1,000,400 24% Real Estate – Owner Occupied $ 671,100 16% Real Estate – Multi-Family & Residential Rental $ 308,200 8% Real Estate – Land
Slide 25: Asset Quality Metrics
Strong Credit Culture Asset Quality Metrics 11 bps* Nonperforming Assets to Total Quarter Trends ($ in thousands) Assets 6/30/22 9/30/22 12/31/2022 3/31/23 6/30/23 9/30/23 Net loan charge-offs (recoveries) $ (300) (200) (100) 0 200 0 Net loan charge-offs (recoveries) (0.04%) (0.03%) (0.01%) (0.01%)
Slide 26: Core Commercial Loan Growth
Strong Credit Core Commercial Culture Loan Growth ($ in millions) Five Quarter Loan Growth Trends Core Commercial Loans 4% $3,240 $3,219 $3,220 Annualized $3,200 $3,189 commercial loan $3,180 $3,160 growth in the third $3,140 $3,142 $3,131 $3,139 quarter of 2023 $3,120 $3,100 $3,080 Sep-22 Dec-22 Ma
Slide 27: Lending Commitments
Strong Credit Culture Lending Commitments ($ in millions) 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 Construction Loans Commercial $ 170 197 285 327 379 Residential $ 84 72 58 59 54 Commitments to Make Loans* $ 309 330 347 351 288 Total $ 563 599 690 737 721 * Commitments to make loans generally refle
Slide 28: Commercial Loan Portfolio Composition
Strong Credit Culture Commercial Loan Portfolio Composition* Loan Type Industry Commercial Real Estate - Multi- Wholesale Trade Retail TradeTransportation Commercial Family & 5% 7% & Real Estate - Residential Warehousing Non-Owner Rental Manufacturing 2% Occupied 10% 17% Information 31% 0.4% Constru
Slide 29: Commercial Loans Rate Type
Strong Credit Culture Commercial Loans* ($ in thousands) Rate Type Balance 35% Floating Rate Commercial Loans $ 2,100,000 65% Fixed Rate Commercial Loans $ 1,119,000 Total Commercial Loans $ 3,219,000 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of September 30, 2023. 29
Slide 30: Past Due Loans
Strong Credit Culture Past Due Loans Commercial & Retail Past Due Loans* ($ in millions) Recorded 30 – 59 60 – 89 > 89 Balance Total Past Total Days Days Days Current > 89 Days Due Loans Past Due Past Due Past Due & Accruing Commercial & Industrial $ - - 0.2 0.2 1,166.0 1,166.2 - Vacant Land, Land D
Slide 31: Past Due Loans Trend
Strong Credit Culture Past Due Loans $8.0 $7.0 $6.0 4 bps* $5.0 Past Due Loans Millions as % of Total Loans $4.0 $3.0 $2.0 $1.0 $0.0 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 12/31/2022 3/31/2023 6/30/2023 9/30/2023 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruin
Slide 32: FDIC Commercial Real Estate Lending Concentration Guideline
Strong Credit FDIC Commercial Real Estate Culture Lending Concentration Guideline* Commercial Real Estate Loans / Total Regulatory Capital 250% 245% 240% 235% 230% 225% *generally not to exceed 300% 32
Slide 33: Non-Owner Occupied Commercial Real Estate Lending
Strong Credit Non-Owner Occupied Culture Commercial Real Estate Lending* 8% 5% 5% Non-Owner Retail Occupied CRE 3% Office As % of Total Loans 3% Industrial Assisted Living <1% Hotel Other NOO CRE Remainder of Loan Portfolio Remainder of Commercial Loans Percentage Percentage ($ in thousands) Balance
Slide 34: Company Overview
AMercantile Bank Corporation Company Overview
Slide 35: About Mercantile Bank
Company Overview ® Top 10 About Mercantile Bank Deposit Market Share in Michigan • Founded in Grand Rapids in 1997 • Second largest bank headquartered in Michigan • 45 banking locations • Expanded to Cincinnati, Ohio and Midland, Michigan in 2020, Petoskey, Michigan in 2021 and Traverse City, Michig
Slide 36: Strategic Initiatives
Company Overview Strategic Initiatives LEVERAGE DIGITAL PEOPLE & RISK & INVESTMENTS DELIVERY CULTURE PROCESS • Expand usage of Treasury • Expand customer • Recruit and retain top • Maintain dynamic Management products and utilization of digital talent and develop Enterprise Risk services, enhancing
Slide 37: Forward Progress
Company Overview Forward Progress • 33% gender, racial and ethnic diversity on Board of Directors. DEI • All team members have access to enriching learning and growth opportunities via a wide variety of methods, including live speaking engagements, videos, books, articles, group discussion and train
Slide 38: Product Offerings
Company Overview Product Offerings Commercial and Retail capabilities on par with national and regional banks PEER PRODUCT MBWM BAC JPM FITB CMA Autobooks for Small Business with Electronic Invoicing & Receivables Bill Payment & ACH Cash Management Credit Card Rewards
Slide 39: Thank you for your interest in our company
Thank you for your interest in our company NASDAQ Global Select Market Symbol: MBWM 310 Leonard Street NW, Grand Rapids, MI 49504 616.406.3000 or 800.453.8700 www.mercbank.com