Release Date: October 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mercantile Bank Corp (MBWM, Financial) achieved a significant reduction in the loan-to-deposit ratio from 110% at year-end 2023 to 102% as of September 30, 2024.
- Local deposits grew by approximately $600 million in the first three quarters of 2024, representing a 21% annualized growth rate.
- Noninterest income increased by 27% during the first three quarters of 2024 compared to the same period in 2023, with mortgage banking income growing by 49%.
- Asset quality remains strong with nonperforming assets totaling only 17 basis points of total assets, and no commercial real estate representation among nonperforming assets.
- Mercantile Bank Corp (MBWM) maintains a strong and well-capitalized regulatory capital position, with a total risk-based capital ratio of 13.9% at the end of the third quarter.
Negative Points
- Net income for the third quarter of 2024 was $19.6 million, down from $20.9 million in the same period of 2023.
- Net interest income declined by $0.7 million during the third quarter of 2024 compared to the prior year period.
- The net interest margin decreased by 46 basis points during the third quarter of 2024 compared to the third quarter of 2023.
- Interest expense increased significantly, with $12.9 million higher during the third quarter of 2024 compared to the prior year period.
- Noninterest expenses rose by $3.4 million during the third quarter of 2024, driven by higher salary and benefit costs, and increased data processing costs.
Q & A Highlights
Q: Can you elaborate on the drivers of the impressive deposit growth this quarter, especially regarding noninterest-bearing balances?
A: Raymond Reitsma, President and CEO, explained that the growth is driven by new client acquisition and focusing on deposit opportunities, not just loan opportunities. The growth is spread across business banking deposits, which is a strength of the company. Charles Christmas, CFO, added that the increase in noninterest-bearing deposits is due to seasonal factors as businesses prepare for year-end payments.
Q: How did deposit pricing react to the Fed's 50-basis-point rate cut?
A: Charles Christmas, CFO, noted that deposit pricing, particularly for money market accounts and CDs, decreased by about 50 basis points, consistent with the Fed's rate cut. This adjustment was in line with market trends.
Q: What was the cost of deposits in the third quarter, and how do you expect it to change?
A: Charles Christmas, CFO, stated that deposit rates were around 4.75% to low 5% during the quarter, decreasing by 50 basis points after the Fed's rate cut. The blended rate of deposits wasn't specified, but growth in money market and time deposits significantly impacted overall costs.
Q: Can you provide more details on the expected net interest margin (NIM) compression after the fourth quarter?
A: Charles Christmas, CFO, indicated that the NIM compression is expected due to the Fed's rate cuts, with a projected stable margin outlook for 2025 if the Fed continues a gradual rate-cutting cycle. The compression is primarily due to anticipated deposit growth exceeding loan growth.
Q: How are you approaching capital management and potential stock buybacks given your current valuation?
A: Charles Christmas, CFO, emphasized maintaining strong capital buffers to support growth and navigate economic uncertainties. While a stock buyback plan is in place, the focus remains on capital preservation to support loan growth and maintain a healthy dividend.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
