MBWM - Earnings call transcript Q4 2024 | Mercantile Bank Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the Mercantile Bank Corporation 2024 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nichole Kladder, First Vice President, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Nichole Kladder

Happy New Year, everyone, and thank you for joining us. Today, we will cover the company's financial results for the fourth quarter of 2024. Officer. me Officer; include Christmas, as President Chief joining and Reitsma, Executive members and Executive Chief well Financial team this Ray morning President Vice The as Chuck

by Our both include agenda to covering presentation quarter's our with will prepared references Ray Chuck and begin and will results. this remarks

we of to presentation today After mercbank.com. by well access will open the call as remarks, the then can questions. You the press a your visiting our copy as release earlier prepared sent

to to factors in earnings, responsibility latest and actual Commission's The call. involve and as my you statements structure is company's results that filings. described Exchange such may it begin, the objectives differ we well call Securities the during company's forward-looking inform certain assumes update business. company's any any could to as this due Before plans as the on no forward-looking made statements obligation projections and statements, company of forward-looking from of the revenue, The today materially statements made capital

Let's begin, Ray.

Raymond Reitsma

on our asset of noninterest the My been funding the Thank you, and to made growth, loan well will side growing have that the balance as as statement resulting comments impacts changes income the quality sheet on and strong excellent our Nichole. income. focus

banking these with while strong, to growth not deposits loan did to together, year-end was commercial post-COVID was compile rates traits XXXX, pace our the growth to performance the trend. growth outflow annual Taken and XXXX year-end growth. have mortgage solid, of for compounded keep this of contributed attractive us allowed from shareholders. From the benefit deposit and The it system loan

sheet this XXX on and ratio to overall profile. loan-to-deposit bank's XXXX. In at with -- our goal increased financial the -- of reducing the XXXX, on-balance strengthen XXX% we to result, increased from liquidity year-end a a focused ratio As

% range a ratio described limited that objective over focus have the business borrowings. our entities building mid-XX approach we or first, the into of deposit loan-to-deposit reducing we reiterate, previous calls, to no pronged broadened As base the in on X including undertook our with deposits, time. To

sources in from Second, the existing loan also totaled of customer and fourth our hurdles $XXX commercial a fourth local which $XXX cash fixed space. balances approximate and more The than borrowers growth relationships local loan $XX governmental the XXXX The $XXX slightly the stands growth card million sale fund based end. construction of but during our XX%. Local we years are flow retail the reduction opted to as has totals. to usage. $XX rather in balance of to the year-end the in substantially the as loan rate sheet on realm efforts have loans recent market. expect or led sheet additions this with past we deposits from loan the strong personnel increased opposed the growth in and the during grew And million allowed total such the alone. and as assets for $XX quarter. in over plan X.X% commercial or to through these balance account, third, growing grow balances focus or strategic the growth commitments to million, $XXX on pipeline quarter rate in year, was the Customer loan reductions of prior an environment loans rate past. Mortgage only the not in year-end, million, increase we the excess in million Taking sold quarter million reduction fourth pace in growth prior impacted reduction commercial are deposits quarter in million, public wholesale which for into transactions at ARMs, on These which have advances reside a $XXX fiscal secondary broker funded deposits. Commercial in FHLB including of for few in deposits was experienced funding an million our factors million immediate the $XX for future loans, increasing than over grown activity

We and decrease have within positive sheet. XX% successfully a loans in on portfolio changes our our compared fiscal income of fiscal mortgage programs, increase executed XXXX on include resulting during placed balance sold in banking sheet. our mortgage rather mortgage a mortgage a balance greater production nominal being to in our XXXX The portion than outcomes

from allowing Our mortgage in environment, team continues that the a diverge average rate challenging results build to market. despite market share

that year-end XXXX. is increasing. The earnings the loan is year-end XX% XX% the level a certainly ratio XX% to mortgage in or growth with contributed core XXXX considered banking at coupled rate-dependent, can year-end XX% of portfolio somewhat the deposits drove growth XXX% local loan-to-deposit from our rate in in environment activity reduction While be year-end of from reliance the XXXX this X% at fiscal and XXXX to on fiscal wholesale to from at funding at independent our

sold assets, residential very at and non-real estate real X primarily nonperforming basis year-end commercial estate consisting of standards loans real our commercial or $X.X deterioration only there remains There in within points any of assets monitoring due quality remain as We underwriting XX representation and Asset $XX,XXX portfolio. no estate loans. strong and million represent among is ORE. of loans identify to dollars is points assets. Past total in outstanding our in vigilant nonperforming total basis

areas first observation line of are of lenders risk. Our recognize and emerging to defense the

grew have to growth experience challenges income environment customers our way. Total Our model recessionary grew is cash said, borrower's greater to portion to of Mortgage XX% a begun upon report accounts strategies originations the to sell the banking any and and charges marketplace. during Service to growth a grew market. accounts. prompt income emerging XXXX continued a higher customer grew robust secondary results That in XX% potential offset finances. to impacts and systematic credit resulting noninterest compared borrower transaction on strong reflecting current with to earlier not in the and the reported based continue continue charges on to offerings categories. outlined of risk as build several services date rating traction levels XXXX in on emphasis a earnings within less XX% sensitivity with balances based providing on our reduced and activity flow, XX% ability Payroll any

Income contribute book track renewal growth annual card Finally, rates rate loans total adjusted per to shifted my borrowers' metrics, Chuck. key year of credit of grew call borrowers of for interest X% and payment record above with to onetime X.X%. That receipt expectations. The the XXXX share of quarter when X a debit swaps XX%, with by of solid income per from declined as second our in rate associated XX% for compounded of XXXX. over of rate protection Visa XX.X%, future deposits across described value demand will tangible from the the interest for concludes earnings remarks. contract a I now and share XX.X%, including turn total results

Charles Christmas

totaled year period. Thanks, $XX.X year year income $X.XX $X.XX to diluted or This Net Ray, during diluted million, share income diluted morning full share per announced share prior of for morning net $XX.X compared the for XXXX. XXXX share good per million, million, diluted of million, we the per fourth compared respective $XX.X $XX.X or $X.XX the income net or full with for or quarter XXXX of everybody. to and the $X.XX per

income periods, to impacted noninterest during XXXX during that fourth Interest increased the loan XXXX more Average the on net respective strong prior year billion income compared both yield XXXX. the than noninterest growth to during fourth loans quarter quarter reflecting fourth quarter of the period, of by loans. on a While $X.XX lower income interest totaled negatively compared billion net $X.XX expense. offset and lower income was expected during increased of increased loans

reflecting income deposit periods, the in of year funds decline periods, yield. Average during reflecting Federal in XXXX. the of XXXX, months on XXXX which prior Reserve growth compared during on prior quarter point the compared than recorded market and during periods, XXX increased the XXXX increased products. points the a income the the XXXX a strong rate of environment. funds basis full prior loan income federal and X year than interest yield fourth quarter was to the higher is X during higher on comprised to XXX the securities interest-earning a the periods. federal money was year environment increase loans XXXX, higher reflecting during months $X.X interest higher in reflecting full to primarily with the points quarter of on growth average the full higher fourth first loans last and year compared aggregate Bank fourth XXX the the the the aggregate yield offset income respective during XXXX, was year million decline fourth loans rate year basis Chicago point higher point and time XXXX year billion XXXX, XXXX XX total, reflecting rate largely totaled the a XX portfolio and basis during in in during XXXX in the XXXX. to compared $XX.X of aggregate a periods and and which the of deposit interest the to balance. In federal last Interest reflecting Our loan primarily quarter million XXXX rate $X.XX increased compared basis $X.XX billion also was rate securities during deposits more in year of majority fourth vast The XXXX, loans it year respective the the compared funds growth in full of expense the We Interest lower time deposits, respective funds on interest to respectively, than XXXX. Interest during increased on months prior and X basis quarter full on largely

prior margin higher-costing of the $X.X lower deposits advances the monies to $X.X compared year billion the was and to loan the to of was XXXX an periods of using large of time higher points our million the portion of Federal fourth and growth periods. Impacting basis our borrowed offsetting full prior full a on Loan year Our basis rate. Interest the during loan-to-deposit full Bank other the advances securities. on of full to XXXX fourth expense billion the Interest during provide growth, the XXXX and the reflecting while In year higher entails to Net was of totaled interest while during million of and fourth and and $X.XX the and funds ratio, cost. respective fourth during money market products, year during purchase full fourth prior than cost higher Home respective quarter compared average products. respective to deposit expense A year to during $X.XX average year initiative deposit full average expense XXXX, XXXX time billion quarter growth, net deposits balance yield year year lower higher than and of billion fourth XXXX XXXX expense Federal XXXX, respective was compared compared XXXX, Loan year the during declined during XXXX Indianapolis the Bank million exceeding purchased prior average quarter deposits during fourth The $X.X securities $X.XX a XX and and was $X.X quarter the the periods. to lower the $XX.X higher full XXXX. Interest similar loan was quarter quarter points on deposit income that average time was during the the total periods. similar generally to compared Indianapolis quarter the the in year period. the strategic additional of year interest during which balance totaled interest million XXXX average reflecting Home XX

basis Our quarter fourth net points to XXXX. the XXXX of of interest the compared fourth XX declined margin quarter during

up largely of last funds yield months costing market on primarily mix our the time X was cost Our basis during reflecting point federal rate assets time funds while decline higher aggregate points the an increased basis XXXX, of of earning reflecting the basis XX XX that declined and points, during in period, deposits. XXX money

period, the interest cost earning XX full declined to net basis during that while compared time basis XXXX, points points. funds on Our XX during basis up our yield points full was margin the increased year XX assets our of year XXXX

costing XXXX rapid period While our basis through raised increased part experienced for from higher costing yield types earning of until deposit of when federal deposit Reserve during did not the products. rates points, deposit latter the balances asset to XXXX in in and the XXXX, meaningful funds of funds to to March growth the of we when move cost begin rate our and Federal competition of by funds began XXX deposit increases July materialize no lower depositors

early margin the interest XXXX. peaked of latter part net during stages Our XXXX of and

annual an speeds $XXX fourth of loans of by market adjustments, The reflects A residential X commissions, allocations the -- advances increases, portfolio While cost salary period, prepayment largely providing $X.X time almost on were allocation merit deposit XXXX necessitated Bank loan lower X%, majority costs residential Home also transaction totaled during $X.X established a cash XXXX along including portion insurance volumes loans Reserve increased processing full products Indianapolis quarter costs funds prior pay a residential year during expenses medical costs of XXXX, $XXX with noninterest specific million We year is also higher the increases during along were increased full a recorded management recorded million with $X.X and time includes the million expense and respective reflect new and for services. Contributions remainder XXXX full surplus periods. the to net the allocations million higher during higher million quarters, and Foundation $X.X compared second million in Mercantile notable securities during million software support million reflecting deposits expense loan and loan strong to year a regulatory surplus of and introduction $XX.X and and remain loan the position. to net fourth deferred costs $XX primarily our $X.X the million. increased Chicago. We provision the Loan by million first non-real higher quarter lender million expense respectively, and The by relationships respective same data surplus salary funds of mortgage compared benefit over full our totaling Federal million. primarily and Bank estate-related grow that of expense respectively. $XXX to the of and XX% We Federal funds fourth slower $XXX XXXX, on that for allocations used net year XXXX increased the quarter levels, well-capitalized capital growth. Noninterest year quarter or mortgage by year the or and of provision and the $X.X and Higher mortgage of of $X.X necessitated Bank costs. the with during comprised commercial periods. growth. The grew provision million prior fourth during during the nonperforming net net reduce

not well the above during million total did the was Our threshold at XX.X% minimum capitalized. We of Bank's be capital ratio end risk-based about $XXX as categorized to repurchase XXXX, XXXX. shares

during now XXXX we our metrics market conditions the the for with current our volatile, Slide presentation, performance rate all We environment operating have to remain share concludes that back my of faced of financial prepared are and to making net rate on navigate tax income range to is to the very financial in to on remain in $X.X well of during We remarks. successfully are as over institutions. That our funds the condition challenges million of no XXXX difficult. interest periods. available X.X% as repurchase Ray. This be X% our for our assumptions the your and federal Expected we provided in the range are and call results all rate interest in XX and we results well-positioned growth noninterest closing, federal project I'll for key forecasting noninterest with turn plan. On loan caveat a income reference. In a through believe expense XXXX. changes forecast myriad by X.X% margin continue and X% forecasting time pleased we to predicated also

Raymond Reitsma

concludes Thank remarks That from you, Chuck. our prepared management.

move now will the portion of call. to We the question-and-answer

Operator

with Nosal from question is first [Operator Instructions] Group. Our Brendan Hovde

Unknown Analyst

Brendan. This on is for John

color So short-term maybe cuts the margin how know say, would could getting on no calls add you margin. year? if to start we changes I X X the rates. your I change, your end wonder up for guide with rate Can we just some outlook if in just this

Charles Christmas

at points about in the all than of don't declines This a And year. change of different rate if X during for somewhere funds scenarios half as the a lot We've or the -- been Fed would year. for we'd at be we're X this put we sure. expect, through looking is Yes, you together basis Chuck. whole our if projecting year, looking we've we first lower what were margin the as of rates X a budget

Unknown Analyst

That's And a looks seeing then strength maybe on what weakness? healthy little with and growth. pivoting just of maybe where bit offer in to you and generated you XXXX. loan The just very -- pretty keeping be of helpful. areas detail maybe outlook Can definitely of might pockets

Raymond Reitsma

So, this areas is under state we've weakness are I'd that of coming identified of The the weakness, But in quarters. of the bank they're average suppliers out we that automotive their Ray. prior being. still say

the that's is around ownership pretty that work closest. they've transition else up opportunities well. that say the then real C&I that we're is fairly be firm we report area like and are and that everything continue probably as even they watching picked I'd to So the estate the do outlook improving. And the and markets strong. But And serve

the say really what much I'd past. isn't there to recent change experienced in So we've

Operator

Raymond question Tamayo is next with The James. Daniel from

Daniel Tamayo

loan start deposit we initiative, just the Maybe on Yes. Ray.

some You lot down time there not XX% guys deposit ratio really of and in loan the to gotten a progress made have significant already.

or getting still having that about if that is that past talked deposit as get that then some way that? as would mind? growth to goal, I you picture, that's know there any following you about bigger goal? in be kind change And of loan in the about or your curious, think on thinking that's is the approach there impact the growth mid-XXs that in we So loan you've range, And

Raymond Reitsma

deposit is What is Yes, our the sheet. one of department and the of those that increasing meet in key appreciate that a components share not to of And market growth. to do in way rather focus the the that has tried the mortgage the the needs way on I an question. we've base artful community our balance detriment of to of fewer increase way put and is yet continued on loan

position we shrunk slightly actually in portfolio end this So we where up that a in environment.

On we side, the year. stronger haven't reining of in to this able mathematical in we've but at about you as that it's our more commercial entire result, shift in talked the really that deposit average characteristics in a to that all, and make clients prospecting efforts, see focus than moves been a have

out The but of first next challenging bonuses and continue tax quarter commercial year expect us is progress that the the clients' our of as for mid-XXs goal. to the flow still seasonally made we've is a one payments accounts, we and

Daniel Tamayo

And a have growth deposit expect on you year next achieve number thoughts this reasonable think what for year? you -- to or do Great. is

Raymond Reitsma

think that I to is order. repeat this tall year a

probably efforts but lines won't expectations the certainly of stop something along there, our in where that's more So the our be would double-digits low expectations, lie.

Daniel Tamayo

for just then me And concentration. more on one CRE Terrific.

or curious just overall... guys you had XXX%, I'm you're as -- still mean, slide about you're the a mean but closer. you've just the you're in the I in on you at Does mix little that but about to it, bit. that shift I how loan thinking up near loan growth? think that how got portfolio caused that curious mind not So concentration go you enter a your

Raymond Reitsma

little number hasn't for our XX, we way years. of think C&I don't will the end at we to of And at persist. the was it remain expect we mix in of that less a but split the haven't sort way a bit fairly large thought necessarily the all. we've think year, shown changed this Yes, that -- about XX We consistent

Charles Christmas

while and today down still would we And it XX bit. million. it's Danny, fund loans million something this construction quite significant, what of add here compared is is as is to our months sit volume Chuck. -- say I I'll $XXX relatively ago XX was to about else to a $XXX

that but as quite we overall a still number, past. I significant was and a think, just the it's not isn't it So in as fund, because funded of lot to it's in the strong XXXX, significant pipeline as

that a the bit in little saying the be CRE of way long of loans. growth less lessened construction funding will a because So of

Raymond Reitsma

in that's our about follow supply short statement general, our In up. we that housing but a we've shown markets pushed slightly on proportions that's And historically. what think short they're really serve, number I still that stock that what the expect that, true to is in markets housing stock, we and

Operator

The next Piper question is from Nathan Sandler. Race with

Nathan Race

portfolio you the aspirations you've going a Just of deposit the still strong going and Obviously forward. XQ here question kind on pretty forward. of sizes grown have in securities growth it

thinking investment the securities So of just some in the about size curious expecting what you're you're terms of how and portfolio or rates seeing, forward, going there?

Charles Christmas

with as where mid-XXs. it with and is I XX% the This be this goes securities expecting that's perhaps exceeding maybe in the funding that, the that year loan-to-deposit would expect Yes. of loans. XX%, portfolio a we in continued of the recipient additional kind probably to the in growth the range, up We're deposits XX%, is long-term the would Chuck.

but is at relatively that balance expectation, least much range. things, to likely Fed look somewhere look of I expect regulatory keep bring that those the types say primarily securities in money the will we Reserve. When we how sheet at the would the in near-term, to on-balance mid-XXs, down, portfolio around short-term, liquidity, in So we we be if basis liquidity, least point the XXXX, of expect X on-balance at Part which add high. that loan-to-deposits our of securities might that, our sheet environment, keep the Federal to remain to that if the continue is another portfolio, or encouragement, that the XX% at at XX% we

Nathan Race

margin discussion. kind terms of can Curious remains back Fed in trajectory what That's just yields you're think the at seeing to about pricing over it. the of how of quarter just helpful. least the loan Got next days, loan pause given X? these or new And the assuming we going on

Charles Christmas

Yes.

I is continue getting during funds. making and we that needed taking something learned Great very we our into we be that to of vigilant sure for how price to were paid the the risk vigilant we loans, and cost think we in that's Recession be obviously account

So I we well that pricing, we as loan risk think continue discipline, market spreads, our grade, to as by that the when think employ with formula the as a that's our and as maintain lot at driven I obviously, loan continue -- on look what's the get of rates. which competition, loan I think well are rates we our we commensurate going as with we

or really will in very the that funds in of market, especially rate, the or structure, on strong the that successful that, the net think legally impact the down which lot really do, some makes be and with side, not is our that we sense. as that's have strategy, a concern talk then tied our but on for deposit has how we Fed good tied years, build seen side, especially that couple whatever interest is -- our to especially pricing funds sheet they loans as over to sideways, nominal we go it growth what manage about us. think rates it's then deposit do. And up is are think on a floating with no goal on is -- of to deposit and we're little that, We I last legally interest Fed can rate we money lot, whether matching loans. And really as agnostic XXXX, but possibly rate. the growth, seen And a again, our be strategy of we've So what what large, regardless margin, our rates we of rate a get way that to of balance

Nathan Race

last And maybe me. for one one

course over capital some comfortable levels capital. allowing guys are contemplating how of significant curious the before deployment you of build to year this Just more excess maybe

just range of for TCE Just kind levels some capital ] XXXX [ as any on comfort thoughts the other of the or progresses? maybe

Charles Christmas

Yes.

think at relatively change any our significant We strong X. say say, be capital way in want capital really a ratios. don't would in that, least foresee judicious I I XXXX, it, and in maintaining, we've to been that I I certainly before year very managing or would the

I supporting loan and X% is to And we the dividend. cash solid very takes make of of to is just do most that have that to that. growth. loan think course, sure for we're X% it a number. with -- a manage that's We announced our and increase our change performance in We growth we still do to that today notwithstanding, twice continue obviously, or we have on anything that typically anything marketplace. year to plans our don't any going capital

forward are capital And loan basically and excuse growth me look our -- we is go growth will we're retained if So that earnings supports earnings our our currently. and at with remain steady relatively the at at our growth our our pretty looked comfortable rate growth. position, where overall our ratios capital I that asset you expectations would overall we capital capital say as

Operator

next Instructions] DelMonte question [Operator The with Damon is KBW. from

Damon Del Monte

to all well are doing guys is and start. you New then Hope a Year off good

Just a trends strong it credit and obviously think support couple seems quick of as here. outlook. kind and NPLs, provisioning, about follow-ups credit low the like with to very continue we that trends of And very underlying

to It going it fair like think how be give of the Chuck, it? you just that the provision how way So at a to look will -- by forward? driven on a little insight us loan about seems pace could growth. Is

Charles Christmas

the for economic large provision loan that of a on it, way think the we're relatively looking We percent XXXX is growth. wood. That's knock by will environment we're is remain at that necessitated Damon stable, expecting that the

changes that will way that, low this current the -- seen decade the provision the of grade asset is near-term, pretty charge-offs again, have we what I of at steady we now in a loan we we're that one and company from see net -- yes, other So quality an might types budgeting, losses, those don't and of think trends for of is environment lot we looking or see least economic because we XXXX. in a at loan our for expect relatively level a expected and low portfolio. And

Damon Del Monte

is there's through what winter update could Okay. mortgage that and I line, approach the here in know for Great. And the the of banking, you with of pipeline to an the but the mortgage business outlook with just on give kind kind then us months 'XX? shift banking seasonality

Raymond Reitsma

seasonally quite in So quarter, I'd how the the you I strong. material and weather consider Chuck spite into well view And that next factor year. in home current a view I'll of up state we it to held It's to of think through let a and that the the purchasing. speak and say pipeline ability this deterioration is,

Charles Christmas

Yes.

on of XX, change think at look income, mortgage that guidance in seasonality give if at the you that the I you quarter-to-quarter fee that reflective think look really the we Page I is when operation. of

Damon Del Monte

it. Got

lastly, a Okay. guess Great. And here. then question kind modeling of I just

XX% rate Your the guidance next year. tax is for

lower lower. was quarter? year-end some tax this rate This that the just true-up Was items quarter there caused

Charles Christmas

continue but And very, that, say performance historical some we quarter, think that in a an that low-income overall months and fourth that started of happening to Yes. on Mostly that see. hopeful income can those our housing will gone take of some as we about before that true-up, didn't and that happy what was as while that profitability. even tax be quarter we has rate of credits, And XX be statement. XX%, start go continues tax it rate to settling and down activity to we're last and into almost tax We're of we was activities. was our XX% really most the made forward was really that we some until that that last over is and years, see trends more. with to our increasing XX that And credits things operation we're saw for there a those the related the XXXX, to But bring associated and fantastically. sure ago definitely that true-up we book with operation in. We impact types with the entries we down engaged months, we related getting activities the the much the that understood that of, they few of successful, very

Operator

conference This concludes for the over to Ray would session. Reitsma to closing turn like remarks. question-and-answer I our any back

Raymond Reitsma

the your for today's call. and in today's interest in you Thank concludes for your call participation Bank. That

Operator

The conference has now today's Thank for attending presentation. concluded. you

disconnect. may You now

Mercantile Bank (MBWM) 21 Jan 252024 Q4 Earnings call transcript