Mercantile Bank Corporation Announces Strong Fourth Quarter and Full-Year 2025 Results Increases in net interest income and certain noninterest income categories, sustained strength in asset quality metrics and capital levels, and acquisition of Eastern Michigan Financial Corporation highlight the year GRAND RAPIDS, Mich., January 20, 2025 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $22.8 million, or $1.40 per diluted share, for the fourth quarter of 2025, compared wit ...

Core Insights - Mercantile Bank Corporation reported a net income of $22.8 million, or $1.40 per diluted share, for Q4 2025, an increase from $19.6 million, or $1.22 per diluted share, in Q4 2024. For the full year 2025, net income was $88.8 million, or $5.47 per diluted share, compared to $79.6 million, or $4.93 per diluted share, in 2024 [1][2]. Financial Performance - Net revenue for Q4 2025 was $62.1 million, up $3.6 million, or 6.0%, from $58.5 million in Q4 2024. Net interest income was $51.0 million, an increase of $2.6 million, or 5.5%, from $48.4 million in the prior year [3][8]. - Noninterest income for Q4 2025 totaled $11.1 million, up $0.9 million, or 8.7%, from $10.2 million in Q4 2024, driven by higher treasury management fees and bank-owned life insurance income [3][12]. Interest Margin and Yield - The net interest margin was 3.43% in Q4 2025, slightly up from 3.41% in Q4 2024. The yield on average earning assets was 5.52%, down from 5.80% in the prior year, primarily due to a reduced yield on loans [4][9]. - The yield on loans decreased to 6.12% in Q4 2025 from 6.38% in Q4 2024, attributed to lower interest rates on variable-rate commercial loans [4][9]. Acquisition Impact - The acquisition of Eastern Michigan Financial Corporation added $572 million in total assets and $475 million in deposits, enhancing Mercantile's presence in East and Southeast Michigan [5][21]. - The loan-to-deposit ratio improved from approximately 98% at the end of 2024 to 95% at the end of 2025, with a further decline to 91% when including the acquisition [5][22]. Asset Quality - Nonperforming assets were $7.9 million, or 0.1% of total assets, as of December 31, 2025, compared to $5.7 million, or less than 0.1%, at the end of 2024. The increase was mainly due to a weakening commercial construction loan [24][25]. - Loan charge-offs for the full year 2025 totaled $3.1 million, with net loan charge-offs of $1.9 million, or less than 0.1% of average total loans [25][26]. Capital Position - Shareholders' equity reached $725 million as of December 31, 2025, up $140 million from the previous year. Both Mercantile Bank and Eastern Michigan Bank maintained "well-capitalized" positions [27][28]. - The total risk-based capital ratios were 13.8% for Mercantile Bank and 15.3% for Eastern Michigan Bank, exceeding the 10% minimum regulatory threshold [27]. Future Outlook - The company plans to continue expanding its local deposit base to fund anticipated asset growth and maintain a focus on providing a wide array of financial solutions to clients [2][29]. - The Board of Directors declared an increased first quarter 2026 regular cash dividend, reflecting a commitment to building shareholder value [29][30].

Core Viewpoint - Wall Street anticipates a year-over-year increase in earnings for Mercantile Bank, driven by higher revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - Mercantile Bank is expected to report quarterly earnings of $1.37 per share, reflecting a +12.3% change year-over-year, with revenues projected at $61.8 million, up 5.6% from the previous year [3]. Estimate Revisions - The consensus EPS estimate has been revised down by 9.42% over the last 30 days, indicating a reassessment by analysts [4]. Earnings Surprise Prediction - The Zacks Earnings ESP model indicates a positive Earnings ESP of +1.34% for Mercantile Bank, suggesting analysts have recently become more optimistic about the company's earnings prospects [12]. Historical Performance - In the last reported quarter, Mercantile Bank exceeded the expected earnings of $1.38 per share, achieving $1.46, resulting in a surprise of +5.80%. The company has beaten consensus EPS estimates in the last four quarters [13][14]. Investment Considerations - Despite a positive Earnings ESP, Mercantile Bank holds a Zacks Rank of 4, complicating predictions of an earnings beat. Investors should consider additional factors beyond earnings results when evaluating the stock [12][17].

Core Viewpoint - Mercantile Bank Corporation has successfully completed its merger with Eastern Michigan Financial Corporation, enhancing its ability to serve Michigan's communities and businesses [1][3]. Group 1: Merger Details - The merger will see Eastern Michigan Bank operate alongside Mercantile Bank until the first quarter of 2027, after which a consolidation is planned, pending regulatory approvals [2]. - Eastern shareholders will receive $32.32 per share and 0.7116 shares of Mercantile common stock for each share of Eastern common stock [3]. Group 2: Company Overview - Mercantile Bank Corporation, based in Grand Rapids, Michigan, now includes Eastern Michigan Bank, creating one of the largest Michigan-based banking organizations with total combined assets of approximately $6.9 billion [4]. - The combined institutions aim to provide personalized financial products and services, emphasizing exceptional service and community commitment [4].

Core Viewpoint - The Federal Reserve Bank of Chicago has approved the merger between Mercantile Bank Corporation and Eastern Michigan Financial Corporation, marking a significant step towards the completion of the merger process [1][3]. Group 1: Merger Details - Mercantile and Eastern have entered into a Merger Agreement, where Eastern will merge into Shamrock Merger Sub LLC, a subsidiary of Mercantile, which will then merge into Mercantile itself [2]. - Following the merger, Mercantile will temporarily operate as a two-bank holding company, with plans to consolidate Eastern Michigan Bank into Mercantile Bank by the first quarter of 2027, pending regulatory approvals [2]. - The merger is expected to be completed on December 31, 2025, subject to Eastern shareholder approval and customary closing conditions [3]. Group 2: Leadership Comments - Ray Reitsma, President and CEO of Mercantile, expressed satisfaction with receiving all necessary regulatory approvals and emphasized the merger's potential to create value for shareholders, customers, and communities [4]. - Willam Oldford, President and CEO of Eastern, shared enthusiasm for the merger and highlighted the opportunity to enhance products and services for customers [4]. Group 3: Company Profiles - Mercantile Bank Corporation, based in Grand Rapids, Michigan, has approximately $6.3 billion in assets and is one of the largest Michigan-based banks, providing a range of financial products and services [5]. - Eastern Michigan Financial Corporation, based in Croswell, Michigan, operates 12 branches and has $505 million in assets, holding the 1 deposit market share among community banks in its primary market [6].

Financial Performance - Net income for Q3 2025 was $23.8 million, or $1.46 per diluted share, compared to $19.6 million, or $1.22 per diluted share in Q3 2024, reflecting a growth of 21.4%[205] - Net income for the first nine months of 2025 was $65.9 million, or $4.06 per share, compared to $60.0 million, or $3.72 per share, for the same period in 2024[253] - Income before federal income tax for Q3 2025 was $27.5 million, up from $24.5 million in Q3 2024, with a total of $77.4 million for the first nine months of 2025 compared to $75.1 million in 2024[269] - Federal income tax expense decreased to $3.7 million in Q3 2025 from $4.9 million in Q3 2024, with an effective tax rate of 13.4%[214] - The effective tax rate improved to 13.4% in Q3 2025 from 20.1% in Q3 2024, largely due to tax benefits from transferable energy tax credits[270] Asset and Deposit Growth - Total assets increased by $256 million during the first nine months of 2025, reaching $6.31 billion as of September 30, 2025[216] - Total deposits increased by $113 million during the first nine months of 2025, with money market deposit accounts growing by $149 million[210] - Uninsured deposits reached approximately $2.6 billion, or about 54% of total deposits, as of September 30, 2025, compared to approximately $2.2 billion, or 46% of total deposits, as of December 31, 2024[238] - Sweep accounts increased by $130 million during the first nine months of 2025, with an average balance of $239 million[245] Loan Performance - Commercial loans increased by $43.0 million in the first nine months of 2025, resulting in an annualized growth rate of approximately 2%[206] - As of September 30, 2025, total commercial loans amounted to $3.75 billion, representing 81.3% of total loans, up from $3.71 billion or 80.6% as of December 31, 2024[217] - Residential mortgage loans totaled $781 million, or 16.9% of total loans, with a decrease of $46.7 million during the first nine months of 2025[219] - Nonperforming loans represented 0.21% of total loans as of September 30, 2025, indicating strong loan portfolio quality[208] - Nonperforming loans totaled $9.8 million, or 0.2% of total loans, compared to $5.7 million, or 0.1% of total loans, as of December 31, 2024[223] Income and Expense Analysis - Net interest income rose by $3.7 million in Q3 2025 compared to Q3 2024, driven by solid loan growth despite a decline in net interest margin[211] - Noninterest income totaled $10.4 million in Q3 2025, up from $9.7 million in Q3 2024, primarily due to increased service charges and payroll services income[212] - Noninterest income increased to $10.4 million in Q3 2025, up $0.7 million or 7.5% from $9.7 million in Q3 2024, driven by growth in treasury management and payroll services fees[266] - Noninterest expense rose to $34.8 million in Q3 2025 from $32.3 million in Q3 2024, and totaled $99.2 million for the first nine months of 2025, compared to $92.0 million in 2024, primarily due to higher salary and benefit costs[268] Interest Income and Margin - Interest income for the third quarter of 2025 was $85.6 million, an increase of $2.2 million, or 2.7%, from the prior year[255] - Interest income for the first nine months of 2025 was $248 million, an increase of $8.9 million, or 3.7%, from $239 million in the same period of 2024[256] - The yield on average earning assets decreased to 5.75% in the third quarter of 2025 from 6.08% in the prior year, primarily due to lower interest rates on variable-rate commercial loans[255] - The net interest margin decreased to 3.49% in the first nine months of 2025, down from 3.62% in the same period of 2024[261] - The yield on loans was 6.33% during the first nine months of 2025, down from 6.66% in the same period of 2024[261] Credit Losses and Provisions - The allowance for credit losses is maintained at a level deemed adequate to absorb estimated credit losses, reflecting ongoing evaluations based on economic conditions[200] - The company recorded provision expense of $3.9 million during the first nine months of 2025, primarily due to specific allocations related to a commercial construction loan[208] - Provisions for credit losses were $0.2 million in Q3 2025, compared to $1.1 million in Q3 2024, with total provisions for the first nine months of 2025 at $3.9 million versus $5.9 million in 2024[265] Capital and Equity - Shareholders' equity increased by $73.1 million, totaling $658 million as of September 30, 2025, driven by net income of $65.9 million and a $21.3 million increase in market value of available-for-sale securities[241] - The total regulatory capital increased by $33.4 million during the first nine months of 2025, totaling $793 million, which is $236 million above the 10% minimum requirement[252] Interest Rate Risk Management - The company recorded a net asset GAP of $291.4 million within three months as of September 30, 2025, indicating a positive interest rate risk position[275] - Interest rate risk management includes GAP analysis and net interest income simulation analysis, with the latter being the primary measurement technique[278] - Under various interest rate scenarios, a 400 basis point decrease in rates could lead to a $31.7 million or 14.0% decline in net interest income[281] - Future net interest income is influenced by loan growth, economic conditions, and client preferences, among other factors[282]

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Financial Data and Key Metrics Changes - The company reported net income of $23.8 million or $1.46 per diluted share for Q3 2025, compared to $19.6 million or $1.22 per diluted share for Q3 2024, reflecting a strong year-over-year growth [8] - Net income for the first nine months of 2025 totaled $65.9 million or $4.06 per diluted share, up from $60 million or $3.72 per diluted share in the same period of 2024 [8] - The return on average assets was 1.5% and return on average equity was 14.7% for Q3 2025, with a 20% quarter-over-quarter earnings per share growth [7][8] Business Line Data and Key Metrics Changes - Annualized deposit growth for Q3 2025 was 9%, with a compounded annual growth rate of 11.8% over the last six year-end periods [5] - Loan growth contracted an annualized 7% in Q3 2025, attributed to anticipated loan paydowns, but commitments to make loans totaled $307 million, an all-time high [5][6] - Mortgage banking income grew by 12% during the first nine months of 2025 compared to the same period in 2024 [6] Market Data and Key Metrics Changes - Average loans totaled $4.6 billion in Q3 2025, an increase of $201 million or over 4% from Q3 2024 [9] - Average deposits increased to $4.83 billion in Q3 2025, up $489 million or over 11% from Q3 2024 [11] - The loan-to-deposit ratio improved to 96% from 102% a year earlier, indicating better liquidity management [4] Company Strategy and Development Direction - The company is focused on maintaining a strong and stable net interest margin, with a current margin of 3.5% despite a decline in the SOFR rate [3] - The planned acquisition of Eastern Michigan Financial Corporation is expected to positively impact net interest margin and overall financial metrics [7][20] - The company aims to manage its balance sheet to minimize the impact of changing interest rate environments on net interest margin [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating challenges faced by financial institutions, highlighting strong asset quality and a commitment to excellence in underwriting [22] - The company projects loan growth in the range of 5% to 7% annualized for Q4 2025, despite potential headwinds from federal funds rate cuts [21] - Management anticipates that net interest margin will remain steady, supported by strategic initiatives and the upcoming acquisition [30] Other Important Information - The company recorded a provision expense of $0.2 million for Q3 2025, reflecting strong credit quality and net recoveries [16] - Non-interest expenses increased by $2.4 million in Q3 2025, primarily due to higher salary and benefit costs [18] - The effective tax rate for Q3 2025 was 13%, influenced by the acquisition of transferable energy tax credits [19] Q&A Session Summary Question: Inquiry on credit quality and normalized charge-off ratio - Management noted a conservative approach to charge-offs and a typical budget of 5% to 10% for net charge-offs [26][27] Question: Discussion on net interest margin and future rate cuts - Management acknowledged that while rate cuts may pose a headwind, the acquisition will provide benefits to net interest margin [28][30] Question: Clarification on loan paydowns and growth guidance - Management explained that paydowns were recognized in Q3 and indicated that loan growth guidance remains at 5% to 7% for Q4 [38][41] Question: Inquiry on expense expectations and acquisition costs - Management confirmed that the guidance for Q4 includes about $1 million in acquisition costs, with other expenses expected to stabilize [42][70] Question: Discussion on fee income growth and commercial card programs - Management highlighted strong growth in debit and credit card income, driven by increased transaction volumes [71][73]

Financial Data and Key Metrics Changes - The company reported net income of $23.8 million or $1.46 per diluted share for Q3 2025, compared to $19.6 million or $1.22 per diluted share for Q3 2024, reflecting a strong performance [8] - Net income for the first nine months of 2025 totaled $65.9 million or $4.06 per diluted share, up from $60 million or $3.72 per diluted share in the prior year [8] - The return on average assets was 1.5% and return on average equity was 14.7% for Q3 2025, with a 20% quarter-over-quarter earnings per share growth [7][8] Business Line Data and Key Metrics Changes - Annualized deposit growth was 9% for Q3 2025, with a compounded annual growth rate of 11.8% over the last six year-end periods [5] - Loan growth contracted an annualized 7% in Q3 2025, attributed to anticipated paydowns, but commitments to make loans totaled $307 million, an all-time high [5][6] - Mortgage banking income grew by 12% during the first nine months of 2025 compared to the same period in 2024 [6] Market Data and Key Metrics Changes - Average loans totaled $4.6 billion in Q3 2025, an increase of $201 million or over 4% from Q3 2024 [9] - Average deposits increased to $4.83 billion in Q3 2025, up $489 million or over 11% from the prior year [11] - The loan-to-deposit ratio improved to 96% from 102% a year earlier, indicating better liquidity management [4] Company Strategy and Development Direction - The company is focused on maintaining a strong and stable net interest margin, which stood at 3.5% despite a decline in the SOFR rate [3][4] - The planned acquisition of Eastern Michigan Financial Corporation is expected to positively impact various financial metrics, including earnings accretion and tangible book value [7] - The company aims to manage its balance sheet to minimize the impact of changing interest rate environments on its net interest margin [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating challenges faced by financial institutions, highlighting strong asset quality and a robust pipeline for loan growth [22] - The company anticipates loan growth in the range of 5% to 7% annualized for Q4 2025, with expectations for continued strong performance in non-interest income [21][41] - Management noted that the effective tax rate for Q3 2025 was 13%, with projections for a similar rate in the future, depending on the acquisition of transferable energy tax credits [19][51] Other Important Information - The company recorded a provision expense of $0.2 million for Q3 2025, reflecting strong credit quality and net recoveries [16] - Non-interest expenses increased by $2.4 million in Q3 2025, primarily due to higher salary and benefit costs [18] - The total risk-based capital ratio was 14.3% as of September 30, 2025, indicating a well-capitalized position [20] Q&A Session Summary Question: Inquiry about credit quality and normalized charge-off ratio - Management noted a conservative approach to charge-offs and typically budgets between 5% and 10% in net charge-offs [26][27] Question: Discussion on net interest margin and future expectations - Management indicated that the acquisition will benefit the net interest margin, despite potential headwinds from rate cuts [28][30] Question: Clarification on loan paydowns and growth guidance - Management explained that paydowns recognized in Q3 were anticipated, and they expect continued mid-single-digit loan growth [39][41] Question: Inquiry about expense expectations and acquisition costs - Management confirmed that the guidance for Q4 includes about $1 million in acquisition costs, with no income statement impact from Eastern until the merger is finalized [44][70] Question: Discussion on fee income growth and expectations - Management highlighted strong growth in the commercial card program, attributing it to increased volume and customer engagement [71]

Financial Data and Key Metrics Changes - The company reported net income of $23.8 million or $1.46 per diluted share for Q3 2025, compared to $19.6 million or $1.22 per diluted share for Q3 2024, reflecting a strong year-over-year growth [9] - Net income for the first nine months of 2025 totaled $65.9 million or $4.06 per diluted share, up from $60 million or $3.72 per diluted share in the prior year [9] - The return on average assets was 1.5% and return on average equity was 14.7% for Q3 2025, with a 20% quarter-over-quarter earnings per share growth [8] Business Line Data and Key Metrics Changes - Annualized deposit growth for Q3 2025 was 9%, with a compounded annual growth rate of 11.8% over the last six year-end periods [5] - Loan growth contracted an annualized 7% in Q3 2025, attributed to anticipated loan paydowns, but commitments to make loans totaled $307 million, an all-time high [5][8] - Mortgage banking income grew by 12% during the first nine months of 2025 compared to the same period in 2024 [7] Market Data and Key Metrics Changes - Average loans totaled $4.6 billion in Q3 2025, an increase of $201 million or over 4% from Q3 2024 [10] - Average deposits increased to $4.83 billion in Q3 2025, up $489 million or over 11% from the prior year [12] - The loan-to-deposit ratio improved to 96% from 102% a year earlier, indicating better liquidity management [4] Company Strategy and Development Direction - The company is focused on maintaining a strong net interest margin, which stood at 3.5%, despite a decline in the SOFR rate [3] - The planned acquisition of Eastern Michigan Financial Corporation is expected to positively impact key financial metrics, including earnings accretion and tangible book value [8] - The company aims to manage its balance sheet to minimize the impact of changing interest rate environments on its net interest margin [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating challenges faced by financial institutions and highlighted a strong pipeline for loan growth [24] - The company anticipates loan growth in the range of 5% to 7% annualized for Q4 2025, despite potential headwinds from rate cuts [23] - Management noted that credit quality remains strong, with expectations for continued net recoveries [29] Other Important Information - The company’s total risk-based capital ratio was 14.3% as of September 30, 2025, indicating a well-capitalized position [22] - The effective tax rates for Q3 and year-to-date 2025 were 13% and 15%, respectively, benefiting from transferable energy tax credits [20] Q&A Session Summary Question: Credit quality and normalized charge-off ratio - Management noted net recoveries in seven of the past eight quarters and budgeted for net charge-offs between 5% and 10% historically [29][31] Question: Net interest margin outlook - Management indicated that the acquisition will benefit the net interest margin, despite potential headwinds from rate cuts [32][34] Question: Loan growth guidance and paydowns - Management clarified that paydowns recognized in Q3 were anticipated and that loan growth guidance remains at 5% to 7% for Q4 2025 [42][45] Question: Expense expectations - Management confirmed that the expense guidance for Q4 includes merger charges but not operational costs from the acquisition [46][75] Question: Tax rate expectations for 2026 - Management projected a tax rate of around 17.5% to 18% without additional energy tax credits, but closer to 16% if credits are maximized [57] Question: Credit trends and provision expectations - Management suggested that the provision for Q4 could be similar to earlier quarters, given strong credit quality [59]