Mercantile Bank (MBWM) Q2 Earnings call transcript Jul 16, 2024

Mercantile Bank Corporation held a robust earnings call, highlighting their financial performance for the second quarter of 2024. The call, led by Nichole Kladder, First Vice President and Chief Marketing Officer, showcased the company's strategic focus on deposit growth and loan management amidst a challenging economic environment.

Loan-to-Deposit Ratio and Deposit Growth Strategies

The call underscored Mercantile Bank's strong commercial loan growth and mortgage loan growth over the past three years, accompanied by a solid deposit growth. However, the loan-to-deposit ratio has seen an increase to 110% at year-end 2023, up from 85% in 2021, attributed to the solid deposit growth not keeping pace with total loan growth. The bank aims to reduce this ratio into the mid-90% range over time, with a three-pronged approach focusing on strategic personnel additions in the public and municipal realm, small business banking, and retail customer focus. These efforts have led to a significant increase in local deposits, highlighting the bank's commitment to deposit growth and balance sheet strengthening.

Asset Quality and Net Interest Income

Asset quality remains a key strength for Mercantile Bank, with non-performing assets totaling $9.1 million, representing a mere 16 basis points of total assets. The bank's robust risk rating model, emphasizing current borrower cash flow and prime sensitivity, continues to be effective in managing risk. Total net interest income grew by 40% during the first half of 2024, driven by mortgage banking income, income from interest rate swaps, and service charges on accounts.

Financial Performance and Future Outlook

The company reported net income of $18.8 million or $1.17 per diluted share for the second quarter of 2024, a slight decrease from the previous year's $20.4 million or $1.27 per diluted share. However, the first six months of 2024 saw a total net income of $40.3 million, indicating a resilient financial performance. Looking ahead, Mercantile Bank expects loan growth in the range of 4-6% and a stable net interest margin of 3.5-3.6% during the third and fourth quarters. The bank's strategic deposit growth initiatives, coupled with a strong asset quality and robust risk management, position Mercantile Bank well for continued success in the evolving financial landscape.

In summary, Mercantile Bank Corporation's second quarter earnings call demonstrated a company focused on strategic growth, deposit expansion, and asset quality management. With a clear vision for reducing the loan-to-deposit ratio and maintaining a strong financial position, Mercantile Bank is poised for continued success amidst the challenges and opportunities of the financial services sector.