Mercantile Bank ((MBWM)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Mercantile Bank’s recent earnings call painted a picture of robust financial health, marked by significant growth in deposits, fee income, and earnings per share. The sentiment was largely positive, underscored by strong asset quality and an improved loan-to-deposit ratio. However, the call did not shy away from addressing challenges, such as loan contraction in the third quarter and rising non-interest expenses.
Strong Net Interest Margin and Asset Quality
Despite a notable 96 basis point drop in the SOFR ninety-day average rate, Mercantile Bank’s net interest margin showed resilience, decreasing only slightly by two basis points to 3.5%. Asset quality remained a strong point, with past due loans at just 16 basis points and non-performing loans at 13 basis points of total loans.
Improved Loan-to-Deposit Ratio
The bank reported an improved loan-to-deposit ratio, which dropped to 96% from 102% in 2024 and 110% in 2023. This improvement was supported by a favorable deposit mix, including 25% non-interest-bearing deposits and 20% lower-cost deposits.
Growth in Key Fee Income Categories
Mercantile Bank saw substantial growth in fee income, driven by commercial deposit relationships. Service charges increased by 18%, payroll service offerings grew by 15%, and mortgage banking income rose by 12% year-over-year.
Earnings and Book Value Growth
The bank’s earnings per share surged by 20% quarter-over-quarter, while the tangible book value per share increased by 13% over the last four quarters. The five-year compounded annual growth rate stood at an impressive 8.4%.
Deposit and Loan Growth
Annualized deposit growth was recorded at 9% for 2025, with a compounded annual growth rate of 11.8% over six years. Loans also showed a healthy compounded annual growth rate of 10% over the same period.
Loan Contraction in Q3
The third quarter saw a contraction in loans at an annualized rate of 7%, attributed to anticipated loan paydowns. This contraction is expected to be a temporary, one-quarter anomaly.
Higher Non-Interest Expenses
Non-interest expenses rose by $2.4 million in Q3 2025 compared to the previous year, driven by increased salary and benefit costs, as well as higher data processing expenses.
Impact of Lower Yield on Loans
Despite overall loan growth, the yield on loans was 31 basis points lower than in 2024, primarily due to a decline in the federal funds rate.
Forward-Looking Guidance
Looking ahead, Mercantile Bank provided optimistic guidance, highlighting a stable net interest margin and robust asset quality. The bank expects continued improvement in its loan-to-deposit ratio and a 9% annualized deposit growth rate for 2025. The upcoming acquisition of Eastern Michigan Financial Corporation is anticipated to positively impact earnings, with projected double-digit earnings accretion and a mid-three-year earn-back period. The bank also plans to maintain its disciplined approach to commercial loan portfolio management.
In summary, Mercantile Bank’s earnings call conveyed a strong financial position with positive growth metrics across various areas. While challenges such as loan contraction and increased expenses were acknowledged, the overall sentiment remained optimistic, supported by strategic initiatives and forward-looking guidance.