• Net Income (Q4 2024): $19.6 million or $1.22 per diluted share.
• Net Income (Full Year 2024): $79.6 million or $4.93 per diluted share.
• Commercial Loan Growth (2024): $292 million or 8.5% over the prior year.
• Local Deposits Growth (2024): $816 million, a growth rate of more than 20%.
• Loan to Deposit Ratio (Year End 2024): Reduced to 98% from 110% at year end 2023.
• Nonperforming Assets (Year End 2024): $5.7 million or nine basis points of total assets.
• Total Noninterest Income Growth (2024): 26% increase compared to 2023.
• Mortgage Banking Income Growth (2024): 62% increase compared to 2023.
• Average Loans (Q4 2024): $4.57 billion compared to $4.18 billion in Q4 2023.
• Average Deposits (Q4 2024): $4.52 billion compared to $3.88 billion in Q4 2023.
• Net Interest Margin Decline (Q4 2024): 51 basis points compared to Q4 2023.
• Provision Expense (Q4 2024): $1.5 million.
• Noninterest Expenses Increase (Q4 2024): $3.9 million higher compared to Q4 2023.
• Total Risk-Based Capital Ratio (Year End 2024): 13.9%.

• Warning! GuruFocus has detected 4 Warning Sign with MBWM.

Release Date: January 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Mercantile Bank Corp (NASDAQ:MBWM) achieved a 22% growth in local deposits in 2024, significantly improving its loan-to-deposit ratio from 110% to 98%.
• The company reported strong commercial loan growth of $292 million or 8.5% over the prior year, with a robust pipeline of $296 million.
• Asset quality remains strong with nonperforming assets at only nine basis points of total assets, indicating excellent credit management.
• Noninterest income grew by 26% in 2024, driven by a 62% increase in mortgage banking income and a 38% rise in service charges.
• Mercantile Bank Corp (NASDAQ:MBWM) maintained a solid capital position with a total risk-based capital ratio of 13.9%, well above the regulatory minimum.

Negative Points

• Net income for the full year 2024 decreased to $79.6 million from $82.2 million in 2023, impacted by lower net interest income and increased noninterest expenses.
• The net interest margin declined by 51 basis points during the fourth quarter of 2024 compared to the same period in 2023, due to higher deposit costs and lower loan yields.
• Interest expense on deposits increased significantly, with costs rising by 42 and 92 basis points during the fourth quarter and full year 2024, respectively.
• Provision expenses increased to $7.4 million for the full year 2024, reflecting slower prepayment speeds on residential mortgage loans and net loan growth.
• Noninterest expenses rose by $10.5 million in 2024, driven by higher salary and benefit costs, increased data processing expenses, and contributions to the Mercantile Bank Foundation.

Q & A Highlights

Q: Can you provide some color on how the margin outlook would change if there are 1 to 2 rate cuts this year? A: Charles Christmas, CFO, explained that if there were one or two declines in the federal funds rate during the first half of the year, the margin would be about five basis points lower than projected if rates remain unchanged.

Q: Could you offer details on where you might see pockets of strength and areas of weakness in loan growth? A: Raymond Reitsma, CEO, noted that automotive suppliers are emerging from previous weaknesses but are still below average. Other areas, such as C&I opportunities and real estate markets, remain strong with no significant changes from the recent past.

Q: What is the goal for the loan-to-deposit ratio, and how does it impact loan growth? A: Charles Christmas, CFO, stated that the goal is to maintain the loan-to-deposit ratio in the mid-90s. The focus is on clients with strong deposit characteristics, which has allowed for progress without negatively impacting loan growth.

Q: How are you thinking about the size of the securities portfolio going forward? A: Charles Christmas, CFO, expects continued growth in the securities portfolio, potentially reaching 15% to 17% of total assets, as deposits exceed loans. This growth will depend on maintaining a loan-to-deposit ratio in the mid-90s.

Q: How should we think about the provision going forward, given the strong credit trends? A: Raymond Reitsma, CEO, indicated that the provision for 2025 will largely be driven by loan growth, with expectations of a stable economic environment and low net charge-offs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.