Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q2 2024 Earnings Presentation
39 slides from Mercantile Bank's earnings presentation, Jul 16, 2024
Slide 1: Investor Presentation
Investor Presentation July 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 CEO & Mr. Christmas joined the Bank in President of the Bank effective 1998 and has over 36 years of June 1, 2024, and has been with the banking experience. Before being B
Slide 4: Financial Performance
Financial Performance Second Quarter 2024
Slide 5: Performance Highlights
FINANCIAL PERFORMANCE Performance Highlights • Net income of $18.8MM in 2Q24 versus $20.4MM in 2Q23 Earnings • EPS of $1.17 in 2Q24 versus $1.27 in 2Q23 • Net interest margin of 3.63% in 2Q24 versus 4.05% in 2Q23 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 $35 $30 After Tax Net Unrealized $25 Gain/(Loss) per share $20 $15 $10 TBV per common share $5 e
Slide 7: Profitability Metrics
FINANCIAL PERFORMANCE Profitability Metrics Solid profitability metrics; historically above peer averages Quarterly Quarterly Return on Average Assets Return on Average Equity (ROAA) relative to peer group (ROAE) relative to peer group 1.8% 20.0% 1.6% 18.0% 1.4% 16.0% 1.2% 14.0% 12.0% 1.0% 10.0% 0.8
Slide 8: Loan to Deposit Ratio
FINANCIAL PERFORMANCE Loan to Deposit Ratio* 120% $5,000 110% 107% 102% 100% $4,000 Ratio of Retail Loans to Total Loans: 20% 80% $3,000 85% Ratio of Retail Loans to In millions 60% Total Loans: 13% Increase in PPP loans leading to an increase in deposit balances and Federal Reserve deposits $2,000
Slide 9: Net Interest Income
FINANCIAL PERFORMANCE Net Interest Income Stable net interest income through a dynamic Increased interest income reflects loan growth interest rate environment and higher interest rate environment 5.5% $100 $5.0 $55 Loans ($ in billions) Interest Income $4.5 ($ in millions) $80 $ in millions 4.5% $4
Slide 10: Net Interest Margin
FINANCIAL PERFORMANCE Net Interest Margin Stable net interest margin • Proactive balance sheet management strategies such as matched funding fixed rate commercial loans and commercial loan back-to-back interest rate swap program • Solid margin provides opportunity to lower loan to deposit ratio 4.3%
Slide 11: 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 • Re-priced maturing fixed rate loans and investments Gradual increase in cost of funds • Deposit rate increases
Slide 12: Noninterest Income
FINANCIAL PERFORMANCE Noninterest Income Notable increases in treasury management-related income and mortgage banking income $10,000,000 $7,500,000 $5,000,000 $2,500,000 $0 2Q23 3Q23 4Q23 1Q24 2Q24 Other income Earnings on bank owned life insurance Payroll services Interest rate swap income Credit a
Slide 13: Noninterest Expense
FINANCIAL PERFORMANCE Noninterest Expense 52%* Efficiency Stable Cost Structure and Efficiency Ratio Ratio $40,000,000 55% 50% $35,000,000 45% $30,000,000 40% $25,000,000 35% 30% $20,000,000 25% $15,000,000 20% 15% $10,000,000 10% $5,000,000 5% $0 0% 2Q23 3Q23 4Q23 1Q24 2Q24 Other expense Data proce
Slide 14: Income on Sales of Mortgage Loans
FINANCIAL PERFORMANCE Mortgage Loan Portfolio* Mortgage Loan Originations Mortgage Loan Sale Production $140,000 $100,000 $3,000 $120,000 Income on Sales of Mortgage Loans $2,500 $80,000 $100,000 $2,000 Saleable Loans $60,000 $80,000 $1,500 $60,000 $40,000 $1,000 $40,000 $20,000 $20,000 $500 $0 $0 $
Slide 15: Asset Quality
FINANCIAL PERFORMANCE Asset Quality $4,396 Asset quality measures remain strong Average Loans (in millions) $4,299 • Reflects ongoing commitment to soundly and vigilantly $4,184 underwrite and administer loans and strength of borrowers $4,054 $4,018 • Continuing to build reserve: 15 bps increase fro
Slide 16: Loan Repricing
FINANCIAL PERFORMANCE Loan Repricing* The majority of total loans (73%) have a Total Loan Portfolio Rate Type floating rate Fixed Rate • 72% of commercial loans have a floating rate. Loans: 27% • 81% of fixed rate commercial loans mature within five years. • In aggregate, approximately 86% of total
Slide 17: Investment Portfolio Gains & Losses
FINANCIAL PERFORMANCE Investment Portfolio Gains & Losses ($ 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 losses (before t
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 12.2% 14% As Reported Total Risk-Based Total Risk Based 12% Capital Ratio Capital Ratio 10% As Reported Tier 1 Leverage 8% Capital Ratio 13.9% 6%
Slide 19: Deposits & Sweep Accounts
FINANCIAL PERFORMANCE Deposits & Sweep Accounts Sweep Brokered Deposits Brokered Deposits Accounts 3% Noninterest-Bearing 4% Noninterest-Bearing 5% Checking Checking 26% Sweep Accounts Time $100,000 30% 6% & Over 12% Time $100,000 & Over 11% Time Under $4.4 Billion $4.1 Billion $100,000 4% as of as
Slide 20: Large Depositors
FINANCIAL PERFORMANCE Large Depositors Includes Sweep Account Balances Depositors with over $5 million as of June 30, 2024 Total – 77 relationships aggregating $1.3 billion Business/Individual – 63 relationships aggregating $1.1 billion Governmental – 14 relationships aggregating $0.2 billion Balanc
Slide 21: Deposit Balances
FINANCIAL PERFORMANCE Deposit Balances Deposits comprised of mostly business accounts* Personal 37% Business 63% ($ in thousands) December 31, 2023 June 30, 2024 Personal Business Personal Business Noninterest-Bearing Checking $ 208,800 1,038,900 198,600 927,500 Interest Checking $ 201,300 434,500 1
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 $ 576,000 Unpledged Investments $ 426,000 *As of June 30, 2024. 22
Slide 23: Thoughts on Remainder of 2024
FINANCIAL PERFORMANCE Thoughts on Remainder of 2024 Prime/SOFR Rates • 25 basis point reduction effective October 1, 2024 2024 Performance Metrics 3rd Quarter 4th Quarter Loan Growth 4.00% – 6.00% 4.00% – 6.00% Net Interest Margin 3.50% – 3.60% 3.50% – 3.60% Fee Income $9.0MM – $10.0MM $8.5MM – $9.5
Slide 24: Strong Credit Culture
Strong Credit Culture Diversified Lending
Slide 25: Total Loans
STRONG CREDIT CULTURE Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,275,700 29% Real Estate – NonOwner Occupied $ 1,059,100 24% Real Estate – Owner Occupied $ 732,800 16% Real Estate – Multi-Family & Residential Rental $ 389,400 9% Real Estate – Land
Slide 26: Asset Quality Metrics
STRONG CREDIT CULTURE Asset Quality Metrics 16 bps* Nonperforming Quarter Trends ($ in thousands) Assets to Total Assets 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 Net loan charge-offs (recoveries) $ 200 0 (100) (400) (300) Net loan charge-offs (recoveries) to 0.02% 0 (0.01%) (0.04%) (0.03%) average l
Slide 27: Core Commercial Loan Growth
STRONG CREDIT CULTURE Core Commercial Loan Growth ($ in millions) Five Quarter Loan Growth Trends Core Commercial Loans $3,600 $3,533 7% $3,500 $3,415 $3,430 Commercial loan $3,400 growth in the first half $3,300 $3,238 $3,206 of 2024 $3,200 (Annualized) $3,100 $3,000 Jun-23 Sep-23 Dec-23 Mar-24 Jun
Slide 28: Lending Commitments
STRONG CREDIT CULTURE Lending Commitments ($ in millions) 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 Construction Loans Commercial $ 327 379 311 362 320 Residential $ 59 54 46 40 37 Commitments to Make Loans* $ 351 288 262 235 255 Total $ 737 721 619 637 612 *Commitments to make loans generally reflec
Slide 29: Composition - Commercial Loans
STRONG CREDIT CULTURE Composition - Commercial Loans* Loan Type Industry Commercial Real Estate - Multi- Wholesale Trade Transportation & Retail Trade 6% Commercial Real Family & 5% Warehousing 1% Estate - Non- Residential Rental Manufacturing Owner Occupied 11% Information 19% 30% <1% Construction
Slide 30: Rate Type - Commercial Loans
STRONG CREDIT CULTURE Rate Type - Commercial Loans * ($ in thousands) Rate Type Breakdown Balance 28% Floating Rate Commercial Loans $ 2,540,200 Fixed Rate Commercial Loans $ 993,100 72% Total Commercial Loans $ 3,533,300 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of June 30, 202
Slide 31: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans Commercial & Retail Past Due Loans* ($ in millions) Recorded 30 – 59 60 – 89 > 89 Total Past Balance > Days Past Days Days Past Current Total Loans Due 89 Days & Due Past Due Due Accruing Commercial & Industrial $ - 0.1 4.8 4.9 1,270.8 1,275.7 - Vacant Land, Land
Slide 32: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans $8.0 14 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 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 6/30/24 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruing *As of June 30,
Slide 33: 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% 33
Slide 34: 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) NOO CRE Office 6% $1,000 6% $900 NOO CRE Retail $800 6% $700 NOO Industrial $600 3% $500 2% $400 NOO CRE Hotel 1% $300 $200 NOO CRE A
Slide 35: Company Overview
Company Overview
Slide 36: Company Overview
COMPANY OVERVIEW • Is the one of the largest bank headquartered in Michigan • Was founded in 1997 in Grand Rapids, MI. • Has more than 650 employees & over 40 locations. • Offers more than 75 products & services supporting commercial, business, governmental, educational, nonprofit, treasury & person
Slide 37: 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 38: 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 39: 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