Mercantile Bank Corporation · NASDAQ:MBWM
Mercantile Bank — Q1 2024 Earnings Presentation
39 slides from Mercantile Bank's earnings presentation, Apr 16, 2024
Slide 1: Investor Presentation
Investor Presentation April 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 First Quarter 2024
Financial Performance First Quarter 2024
Slide 5: Performance Highlights
FINANCIAL PERFORMANCE Performance Highlights First Quarter Highlights Non- Commercial Total Net Interest Performing Tang. Equity/ Loan Growth Risk-Based Margin Assets/ Tang. Assets* (Annualized) Capital Ratio* Total Assets* 3.74% 1.7% 0.11% 9.0% 14.1% Three Months Ended March 31, 2023 March 31, 2024
Slide 6: Loan to Deposit Ratio
FINANCIAL PERFORMANCE Loan to Deposit Ratio* 120% $5,000 March 31, 2020 December 31, 2023 110% 110% March 31, 2024 108% 100% Ratio of Retail Loans to $4,000 Total Loans: 15% Ratio of Retail Loans to 80% Total Loans: 21% $3,000 December 31, 2021 Increase in PPP loans leading to an increase in 85% dep
Slide 7: Net Interest Income
FINANCIAL PERFORMANCE Net Interest Income • Interest income growth reflects loan growth and higher interest rate environment • Interest expense increase reflects higher deposit cost and change in funding mix Three Months Ended March 31, 2023 March 31, 2024 INTEREST INCOME Loans, including fees $ 57,
Slide 8: Net Interest Margin
FINANCIAL PERFORMANCE Net Interest Margin Stable net interest margin • 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% 3.7% 3.6% 2.6% 2.9% 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Q
Slide 9: 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 • Deposit rate increases and change in funding mix throughout 2023 and 2024 8.0
Slide 10: Noninterest Income
FINANCIAL PERFORMANCE Noninterest Income Notable increase in treasury management fees, and growth in mortgage banking income, private equity investment income, and bank-owned life insurance income $10,000,000 $7,500,000 $5,000,000 $2,500,000 $0 1Q23 2Q23 3Q23 4Q23 1Q24 Other income Earnings on bank
Slide 11: Noninterest Expense
FINANCIAL PERFORMANCE Noninterest Expense 51%* 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% 1Q23 2Q23 3Q23 4Q23 1Q24 Other expense Data proce
Slide 12: Income on Sales of Mortgage Loans
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 1st Qtr
Slide 13: Asset Quality
FINANCIAL PERFORMANCE Asset Quality $4,299 Asset quality measures remain strong Average Loans (in millions) $4,184 • Reflects ongoing commitment to soundly and $4,054 $4,018 vigilantly underwrite loans and strength of $3,928 borrowers • Continuing to build reserve: 11 bps increase from the 1Q 2023 t
Slide 14: Loan Repricing
FINANCIAL PERFORMANCE Loan Repricing* The majority of total loans (72%) have a Total Loan Portfolio Rate Type floating rate • 69% of commercial loans have a floating Fixed Rate Loans: rate. 28% • 80% of fixed rate commercial loans mature within five years. Variable • In aggregate, approximately 85%
Slide 15: Investment Portfolio Gains & Losses
FINANCIAL PERFORMANCE Investment Portfolio Gains & Losses ($ 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 16: Impact of Unrealized Losses on Valuations
FINANCIAL PERFORMANCE Impact of Unrealized Losses on valuations Minimal impact of unrealized losses on tangible book value per share given strong earnings and relative size of investment portfolio $35 $30 $25 $20 $15 $10 $5 $0 ($5) ($10) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qt
Slide 17: Investment Portfolio Maturities
FINANCIAL PERFORMANCE Investment Portfolio Maturities ($ 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 18: Capital Regulatory Ratios
FINANCIAL PERFORMANCE Capital Regulatory Ratios (Mercantile Bank Data) Tier 1 Leverage Capital Ratio Actual and Adjusted* Capital Ratios vs. Requirements 12.3% 14% As Reported Total Risk- Total Risk Based 12% Based Capital Ratio Capital Ratio 10% As Reported Tier 1 8% Leverage Capital Ratio 13.8% 6%
Slide 19: Deposits & Sweep Accounts
FINANCIAL PERFORMANCE Deposits & Sweep Accounts Sweep Brokered Deposits Accounts Brokered Deposits 4% 5% Noninterest-Bearing 4% Noninterest-Bearing Checking Checking Sweep Accounts 27% 30% Time $100,000 6% & Over 12% Time $100,000 & Over 11% Time Under $4.2 Billion $4.1 Billion $100,000 as of as of
Slide 20: Large Depositors
FINANCIAL PERFORMANCE Large Depositors Includes Sweep Account Balances Depositors with over $5 million as of March 31, 2024 Total – 76 relationships aggregating $1.2 billion Business/Individual – 61 relationships aggregating $1.0 billion Governmental – 15 relationships aggregating $0.2 billion Balan
Slide 21: Deposit Balances
FINANCIAL PERFORMANCE Deposit Balances Deposits comprised of mostly business accounts* Personal 37% Business 63% ($ in thousands) December 31, 2023 March 31, 2024 Personal Business Personal Business Noninterest-Bearing Checking $ 208,800 1,038,900 207,500 927,500 Interest Checking $ 201,300 434,500
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 $ 464,000 Unpledged Investments $ 381,000 *As of March 31, 2024. 22
Slide 23: Thoughts on Remainder of 2024
FINANCIAL PERFORMANCE Thoughts on Remainder of 2024 Prime/SOFR Rates • 25 basis point reduction in both July and October 2024 Performance Metrics 2nd Quarter 3rd Quarter 4th Quarter Loan Growth 4.00% – 6.00% 4.00% – 6.00% 4.00% – 6.00% Net Interest Margin 3.60% – 3.70% 3.55% – 3.65% 3.55% – 3.65% Fe
Slide 24: Strong Credit Culture: Diversified Lending
Strong Credit Culture Diversified Lending
Slide 25: Total Loans
STRONG CREDIT CULTURE Total Loans* ($ in thousands) Balance Percentage Commercial Loans Commercial and Industrial $ 1,222,600 28% Real Estate – NonOwner Occupied $ 1,045,600 24% Real Estate – Owner Occupied $ 719,300 17% Real Estate – Multi-Family & Residential Rental $ 367,000 8% Real Estate – Land
Slide 26: Asset Quality Metrics
STRONG CREDIT CULTURE Asset Quality Metrics 11 bps* Nonperforming Quarter Trends ($ in thousands) Assets to Total Assets 3/31/23 6/30/23 9/30/23 12/31/23 3/31/2024 Net loan charge-offs (recoveries) $ 0 200 0 (100) (400) Net loan charge-offs (recoveries) to 0 0.02% 0 (0.01%) (0.04%) average loans (an
Slide 27: 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 $3,430 2% $3,400 Commercial loan $3,300 $3,238 $3,206 growth in 1Q24 $3,200 $3,158 (Annualized) $3,100 $3,000 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Five Year Annual Loan
Slide 28: Lending Commitments
STRONG CREDIT CULTURE Lending Commitments ($ in millions) 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 Construction Loans Commercial $ 285 327 379 311 362 Residential $ 58 59 54 46 40 Commitments to Make Loans* $ 347 351 288 262 235 Total $ 690 737 721 619 637 *Commitments to make loans generally reflec
Slide 29: 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 1% Real Estate - Residential Non-Owner Rental Manufacturing Information Occupied 11% 19% <1% 30% Construction
Slide 30: Rate Type - Commercial Loans
STRONG CREDIT CULTURE Rate Type - Commercial Loans * ($ in thousands) Rate Type Breakdown Balance 31% Floating Rate Commercial Loans $ 2,364,940 69% Fixed Rate Commercial Loans $ 1,064,660 Total Commercial Loans $ 3,429,600 Floating Rate Commercial Loans Fixed Rate Commercial Loans *As of March 31,
Slide 31: 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 1,222.4 1,222.6 - Vacant Land, Land D
Slide 32: Past Due Loans
STRONG CREDIT CULTURE Past Due Loans $8.0 2 bps* Past Due Loans $7.0 as % of $6.0 Total Loans $5.0 Millions $4.0 $3.0 $2.0 $1.0 $0.0 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 30-89 Days Past Due 90 Days & Over Past Due Over 89 Days Past Due & Accruing *As of March 31,
Slide 33: FDIC Commercial Real Estate Lending Concentration Guideline
STRONG CREDIT CULTURE FDIC Commercial Real Estate Lending Concentration Guideline Commercial Real Estate Loans / Total Regulatory Capital Generally not to exceed 300% 300% 290% 280% 270% 260% 250% 240% 230% 220% 210% 200% 33
Slide 34: Non-Owner Occupied Commercial Real Estate Lending
STRONG CREDIT CULTURE Non-Owner Occupied Commercial Real Estate Lending* 6% 6% 6% Non-Owner Office Occupied CRE 3% Retail As % of Total Loans 2% Industrial Hotel 1% Assisted Living Other NOO CRE Remainder of Remainder of Commercial Loans Loan Portfolio Percentage Percentage ($ in thousands) Balance
Slide 35: Company Overview
Company Overview
Slide 36: 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 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 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 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