Mercantile Bank (MBWM) - 2025 Q3 - Quarterly Results

Executive Summary & Highlights Mercantile Bank Corporation reported strong financial performance for the third quarter and first nine months of 2025, with significant increases in net income and diluted earnings per share compared to the prior year periods Overall Performance Mercantile Bank Corporation reported strong financial performance for the third quarter and first nine months of 2025, with significant increases in net income and diluted earnings per share compared to the prior year periods | Metric | Q3 2025 | Q3 2024 | 9M 2025 | 9M 2024 | | :----------------- | :---------- | :---------- | :---------- | :---------- | | Net Income | $23.8 million | $19.6 million | $65.9 million | $60.0 million | | Diluted EPS | $1.46 | $1.22 | $4.06 | $3.72 | Key Financial & Operational Highlights The quarter was characterized by robust operating results, including net interest income expansion, stable net interest margin, growth in certain noninterest income categories, a notable decline in federal income tax expense, strong local deposit growth, and continued strength in asset quality and capital measures - Return on average assets: 1.50%[2] - Return on average equity: 14.72%[2] - Tangible book value per common share: $37.41 as of September 30, 2025, up approximately 13% since year-end 2024[2] - Net interest income expansion: nearly 8%[2] - Treasury management and payroll services fees increased by approximately 11% and 16%, respectively[2] - Effective tax rate decreased from approximately 20% in Q3 2024 to approximately 13% in Q3 2025 due to tax credits[2] - Loan-to-deposit ratio reduced from 102% as of September 30, 2024, to 96% as of September 30, 2025, reflecting robust local deposit growth[2] - Announced planned partnership with Eastern Michigan Financial Corporation[2] Operating Results Mercantile Bank Corporation's operating results for Q3 and 9M 2025 show increased net revenue and net interest income, influenced by changes in net interest margin, provision for credit losses, noninterest income, noninterest expense, and federal income tax expense Net Revenue & Net Interest Income Net revenue increased by 7.6% to $62.4 million in the third quarter of 2025, primarily driven by a 7.7% expansion in net interest income to $52.0 million, as growth in earning assets more than offset a slightly lower net interest margin | Metric | Q3 2025 | Q3 2024 | Change ($) | Change (%) | | :------------------ | :---------- | :---------- | :----------- | :----------- | | Net Revenue | $62.4 million | $58.0 million | $4.4 million | 7.6% | | Net Interest Income | $52.0 million | $48.3 million | $3.7 million | 7.7% | Net Interest Margin & Cost of Funds The net interest margin marginally decreased to 3.50% in Q3 2025 from 3.52% in Q3 2024. This was influenced by a lower yield on loans due to FOMC rate cuts and a strategic shift in earning asset mix towards lower-yielding securities, partially offset by a reduced cost of funds | Metric | Q3 2025 | Q3 2024 | | :-------------------------- | :-------- | :-------- | | Net Interest Margin | 3.50% | 3.52% | | Yield on Average Earning Assets | 5.75% | 6.08% | | Yield on Loans | 6.38% | 6.69% | | Cost of Funds | 2.25% | 2.56% | - Lower loan yield primarily due to FOMC lowering the targeted federal funds rate by 50 basis points in September 2024 and 25 basis points in November and December 2024, and a further 25 basis point reduction in September 2025[4] - Higher-yielding loans represented a decreased percentage of earning assets and lower-yielding securities accounted for an increased percentage, reflecting a strategic initiative to lower the loan-to-deposit ratio and increase on-balance sheet liquidity[4] Provision for Credit Losses Provision for credit losses significantly decreased to $0.2 million in Q3 2025 from $1.1 million in Q3 2024. The current quarter's provision mainly reflected an increase for a specific commercial construction loan and qualitative factor allocations, partially offset by faster residential mortgage prepayments and a net decline in the loan portfolio | Metric | Q3 2025 | Q3 2024 | | :-------------------------- | :---------- | :---------- | | Provision for Credit Losses | $0.2 million | $1.1 million | - Q3 2025 provision included a $3.1 million increase in specific allocation for a nonaccrual commercial construction loan and a $0.9 million net increase in qualitative factor allocations[6] - Positive impacts on provision levels from net loan recoveries and sustained strength in loan quality metrics[6] Noninterest Income Noninterest income increased by 7.5% to $10.4 million in Q3 2025, primarily driven by growth in treasury management and payroll services fees, which more than offset a reduction in mortgage banking income | Metric | Q3 2025 | Q3 2024 | Change ($) | Change (%) | | :------------------ | :---------- | :---------- | :----------- | :----------- | | Total Noninterest Income | $10.4 million | $9.7 million | $0.7 million | 7.5% | - Treasury management fees grew approximately 11%, and payroll services fees grew approximately 16%[7] - Mortgage banking income decreased due to a change in the quarter-end fair value of commitments to originate salable residential mortgage loans[7] Noninterest Expense Noninterest expense rose to $34.8 million in Q3 2025 from $32.3 million in Q3 2024, mainly due to higher salary and benefit costs, acquisition costs related to the planned partnership with Eastern Michigan Bank Corporation, and increased data processing costs | Metric | Q3 2025 | Q3 2024 | | :------------------ | :---------- | :---------- | | Total Noninterest Expense | $34.8 million | $32.3 million | - Increase primarily resulted from higher salary and benefit costs (annual merit pay, market adjustments, lower residential mortgage loan deferred salary costs)[8] - Acquisition costs related to the Eastern Michigan Bank Corporation partnership and increased data processing costs also contributed to the rise[8] Federal Income Tax Expense Federal income tax expense decreased significantly to $3.7 million in Q3 2025 from $4.9 million in Q3 2024, resulting in a lower effective tax rate of 13.4% (down from 20.1%) due to the acquisition of transferable energy tax credits and net benefits from investments in tax credit structures | Metric | Q3 2025 | Q3 2024 | | :-------------------------- | :---------- | :---------- | | Federal Income Tax Expense | $3.7 million | $4.9 million | | Effective Tax Rate | 13.4% | 20.1% | - Aggregate tax benefits of $1.0 million from transferable energy tax credits and $0.7 million from investments in tax credit structures[9] Balance Sheet Analysis Mercantile Bank Corporation's balance sheet as of September 30, 2025, shows growth in total assets and loans, an increase in deposits, a reduced loan-to-deposit ratio, and consistent commercial loan portfolio composition Total Assets & Loans Total assets grew to $6.31 billion as of September 30, 2025, an increase of $256 million from December 31, 2024. Total loans increased by $14.4 million during the first nine months of 2025, primarily reflecting net growth in commercial loans despite significant payoffs and paydowns | Metric | Sep 30, 2025 | Dec 31, 2024 | Change (9M 2025) | | :-------------------- | :----------- | :----------- | :--------------- | | Total Assets | $6.31 billion | $6.05 billion | +$256 million | | Total Loans | $4.615 billion | $4.601 billion | +$14.4 million | | Commercial Loans (net growth) | | | +$43.0 million | | Residential Mortgage Loans | | | -$46.7 million | | Other Consumer Loans | | | +$18.1 million | - Commercial loans grew an annualized 1.6% during the first nine months of 2025, despite $255 million in full payoffs and partial paydowns of certain larger relationships[11] Deposits & Loan-to-Deposit Ratio Total deposits reached $4.81 billion as of September 30, 2025, with local deposits increasing by $84.2 million (1.9%) during the first nine months. This growth, along with expansion of the securities portfolio, contributed to a reduction in the loan-to-deposit ratio to 96% from 98% at year-end 2024 | Metric | Sep 30, 2025 | Dec 31, 2024 | Sep 30, 2024 | | :-------------------- | :----------- | :----------- | :----------- | | Total Deposits | $4.81 billion | $4.70 billion | $4.46 billion | | Local Deposits (9M 2025) | | | +$84.2 million (1.9%) | | Loan-to-Deposit Ratio | 96% | 98% | 102% | - Noninterest-bearing checking accounts represented approximately 25% of total deposits as of September 30, 2025[15] Unfunded Commitments Unfunded commitments for commercial construction and development loans decreased to $216 million as of September 30, 2025, from $241 million in the prior year. Residential construction loan commitments increased slightly to $37.0 million | Commitment Type | Sep 30, 2025 | Sep 30, 2024 | | :------------------------------------ | :----------- | :----------- | | Commercial Construction & Development | $216 million | $241 million | | Residential Construction | $37.0 million | $34.0 million | Loan Portfolio Composition Commercial and industrial loans combined with owner-occupied commercial real estate loans represented approximately 55% of total commercial loans as of September 30, 2025, a level that has remained relatively consistent with prior periods - Commercial and industrial loans and owner-occupied commercial real estate loans combined represented approximately 55% of total commercial loans as of September 30, 2025[14] | Loan Type (Commercial) | Sep 30, 2025 (in thousands) | | :--------------------- | :-------------------------- | | Commercial & industrial | $1,337,729 | | Land development & construction | $70,806 | | Owner occupied comm'l R/E | $729,451 | | Non-owner occupied comm'l R/E | $1,091,210 | | Multi-family & residential rental | $521,111 | | Total commercial | $3,750,307 | Asset Quality Mercantile Bank Corporation maintained robust asset quality as of September 30, 2025, despite an increase in nonperforming assets primarily due to a specific commercial construction loan, while recording net loan recoveries Nonperforming Assets Nonperforming assets totaled $9.8 million, or 0.2% of total assets, as of September 30, 2025. The increase during the first nine months of 2025 mainly reflected the weakening of a specific nonperforming commercial construction loan, which accounted for approximately 56% of total nonperforming assets | Metric | Sep 30, 2025 | Dec 31, 2024 | Sep 30, 2024 | | :-------------------------- | :----------- | :----------- | :----------- | | Nonperforming Assets | $9.8 million | $5.7 million | $9.9 million | | % of Total Assets | 0.2% | <0.1% | 0.2% | - A nonperforming commercial construction loan accounted for approximately 56% of total nonperforming assets as of September 30, 2025, necessitating specific reserve allocations totaling $5.5 million[17] - The level of past due loans remains nominal, and the quality of the asset base remained robust[17][18] Loan Charge-offs and Recoveries During the first nine months of 2025, Mercantile Bank recorded net loan recoveries of $0.8 million, or an annualized 0.02% of average total loans, reflecting sustained strength in loan quality metrics | Metric | 9M 2025 | | :------------------------------------ | :---------- | | Loan Charge-offs | $0.3 million | | Recoveries of prior period loan charge-offs | $1.1 million | | Net Loan Recoveries | $0.8 million | | Net Loan Recoveries to Average Loans (annualized) | 0.02% | Capital Position Mercantile Bank Corporation maintained a strong capital position as of September 30, 2025, with increased shareholders' equity and "well-capitalized" regulatory ratios, despite some unrealized losses on investments Shareholders' Equity & Regulatory Capital Shareholders' equity increased to $658 million as of September 30, 2025, up $73.1 million from year-end 2024. Mercantile Bank maintained "well-capitalized" positions with a total risk-based capital ratio of 14.87% and approximately $236 million in excess of the minimum regulatory threshold | Metric | Sep 30, 2025 | Dec 31, 2024 | | :-------------------------- | :----------- | :----------- | | Shareholders' Equity | $658 million | $584.5 million | | Total Risk-Based Capital Ratio | 14.87% | 14.17% | - Mercantile Bank maintained "well-capitalized" positions, with approximately $236 million in excess of the 10% minimum regulatory threshold[19] Unrealized Losses on Investments The net unrealized loss on available-for-sale investments decreased to $36.1 million as of September 30, 2025, resulting in an after-tax reduction to equity capital of $28.5 million, an improvement from year-end 2024 | Metric | Sep 30, 2025 | Dec 31, 2024 | | :------------------------------------ | :----------- | :----------- | | Net Unrealized Loss on AFS Investments | $36.1 million | $63.1 million | | After-tax Reduction to Equity Capital | $28.5 million | $49.8 million | - Adjusted excess capital over the "well-capitalized" threshold, considering unrealized losses, would approximate $208 million as of September 30, 2025[20] Shares Outstanding Mercantile Bank Corporation reported 16,253,544 total shares outstanding as of September 30, 2025 - Total Shares Outstanding (Sep 30, 2025): 16,253,544[21] Company Information & Disclosures This section provides essential company information, including investor presentation availability, a corporate overview, a forward-looking statements disclaimer, and contact details for key executives Investor Presentation Mercantile has prepared investor presentation materials for its third quarter 2025 conference call, which are available in the Investor Relations section of its website and have been furnished to the U.S. Securities and Exchange Commission - Presentation materials are available for viewing in the Investor Relations section of Mercantile's website at www.mercbank.com[23](index=23&type=chunk) - Materials have been furnished to the U.S. Securities and Exchange Commission concurrently with this press release[23] About Mercantile Bank Corporation Mercantile Bank Corporation, based in Grand Rapids, Michigan, is the bank holding company for Mercantile Bank, providing financial products and services to businesses, individuals, and governmental units. It is one of the largest Michigan-based banks with approximately $6.3 billion in assets and is listed on the NASDAQ Global Select Market under the symbol "MBWM" - Headquartered in Grand Rapids, Michigan[24] - Provides financial products and services to businesses, individuals, and governmental units[24] - Approximately $6.3 billion in assets[24] - Common stock listed on NASDAQ Global Select Market under "MBWM"[24] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, emphasizing that actual results may differ materially from expectations due to various risks and uncertainties, including economic conditions, interest rate changes, regulatory actions, and the planned acquisition of Eastern Michigan Financial Corporation - Statements are forward-looking and involve risks and uncertainties[25] - Actual results may differ materially due to factors such as the inability to complete the acquisition of Eastern Michigan Financial Corporation, changes in interest rates, inflation, market volatility, regulatory changes, and cyber-attacks[25] - Mercantile undertakes no obligation to update or clarify forward-looking statements[25] Contact Information Contact details for Raymond Reitsma, President and CEO, and Charles Christmas, Executive Vice President and CFO, are provided for further information regarding Mercantile Bank Corporation - Raymond Reitsma, President and CEO: 616-233-2349, rreitsma@mercbank.com[26] - Charles Christmas, Executive Vice President and CFO: 616-726-1202, cchristmas@mercbank.com[26] Consolidated Financial Statements This section presents Mercantile Bank Corporation's detailed consolidated financial statements, including balance sheets, reports of income, and comprehensive financial highlights for various reporting periods Consolidated Balance Sheets The consolidated balance sheets provide a detailed breakdown of Mercantile Bank Corporation's assets, liabilities, and shareholders' equity as of September 30, 2025, December 31, 2024, and September 30, 2024 | (dollars in thousands) | SEPTEMBER 30, 2025 | DECEMBER 31, 2024 | SEPTEMBER 30, 2024 | | :--------------------- | :----------------- | :---------------- | :----------------- | | ASSETS | | | | | Total assets | $ 6,308,487 | $ 6,052,161 | $ 5,917,127 | | Loans, net | $ 4,556,031 | $ 4,546,327 | $ 4,496,428 | | Securities available for sale | $ 855,138 | $ 730,352 | $ 703,375 | | LIABILITIES | | | | | Total deposits | $ 4,811,813 | $ 4,698,366 | $ 4,455,898 | | Total liabilities | $ 5,650,857 | $ 5,467,635 | $ 5,333,816 | | SHAREHOLDERS' EQUITY | | | | | Total shareholders' equity | $ 657,630 | $ 584,526 | $ 583,311 | Consolidated Reports of Income The consolidated reports of income present the company's financial performance for the three and nine months ended September 30, 2025, and 2024, detailing interest income, interest expense, net interest income, noninterest income, noninterest expense, and net income | (dollars in thousands except per share data) | THREE MONTHS ENDED Sep 30, 2025 | THREE MONTHS ENDED Sep 30, 2024 | NINE MONTHS ENDED Sep 30, 2025 | NINE MONTHS ENDED Sep 30, 2024 | | :----------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total interest income | $ 85,643 | $ 83,412 | $ 247,940 | $ 239,016 | | Total interest expense | $ 33,641 | $ 35,120 | $ 97,911 | $ 96,291 | | Net interest income | $ 52,002 | $ 48,292 | $ 150,029 | $ 142,725 | | Provision for credit losses | $ 200 | $ 1,100 | $ 3,900 | $ 5,900 | | Total noninterest income | $ 10,388 | $ 9,667 | $ 30,552 | $ 30,217 | | Total noninterest expense | $ 34,750 | $ 32,303 | $ 99,233 | $ 91,983 | | Federal income tax expense | $ 3,682 | $ 4,938 | $ 11,535 | $ 15,092 | | Net Income | $ 23,758 | $ 19,618 | $ 65,913 | $ 59,967 | | Diluted earnings per share | $ 1.46 | $ 1.22 | $ 4.06 | $ 3.72 | Consolidated Financial Highlights This section provides a comprehensive table of quarterly and year-to-date financial highlights, including earnings, performance ratios, yield on assets/cost of funds, mortgage banking activity, capital metrics, and asset quality indicators for various periods | (dollars in thousands except per share data) | 2025 3rd Qtr | 2024 3rd Qtr | 2025 Year-To-Date | 2024 Year-To-Date | | :----------------------------------------- | :----------- | :----------- | :---------------- | :---------------- | | EARNINGS | | | | | | Net interest income | $ 52,002 | $ 48,292 | $ 150,029 | $ 142,725 | | Net income | $ 23,758 | $ 19,618 | $ 65,913 | $ 59,967 | | Diluted earnings per share | $ 1.46 | $ 1.22 | $ 4.06 | $ 3.72 | | PERFORMANCE RATIOS | | | | | | Return on average assets | 1.50% | 1.35% | 1.44% | 1.43% | | Return on average equity | 14.72% | 13.73% | 14.28% | 14.66% | | Net interest margin (fully tax equivalent) | 3.50% | 3.52% | 3.49% | 3.62% | | Efficiency ratio | 55.70% | 55.73% | 54.95% | 53.19% | | YIELD ON ASSETS / COST OF FUNDS | | | | | | Yield on loans | 6.38% | 6.69% | 6.33% | 6.66% | | Cost of funds (total earning assets) | 2.25% | 2.56% | 2.27% | 2.44% | | CAPITAL | | | | | | Total risk-based capital ratio | 14.87% | 14.13% | 14.87% | 14.13% | | Tangible book value per common share | $ 37.41 | $ 33.07 | $ 37.41 | $ 33.07 | | ASSET QUALITY | | | | | | Nonperforming loans to total loans | 0.21% | 0.22% | 0.21% | 0.22% | | Net loan charge-offs (recoveries) | $ (554) | $ (82) | $ (775) | $ (776) |