Mercantile Bank Q2 Earnings Call Highlights

Mercantile Bank (NASDAQ:MBWM) reported higher second-quarter earnings and said its year-end 2025 acquisition of Eastern Michigan contributed to stronger deposits, improved liquidity and a stable net interest margin.

Executive Vice President and Chief Financial Officer Chuck Christmas said the company earned net income of $25.9 million, or $1.50 per diluted share, for the second quarter of 2026. That compared with net income of $22.6 million, or $1.39 per diluted share, in the second quarter of 2025. For the first six months of 2026, net income totaled $48.6 million, or $2.82 per diluted share, compared with $42.2 million, or $2.60 per diluted share, in the same period last year.

Excluding non-recurring costs tied to the Eastern Michigan acquisition and the company’s previously announced core and digital banking system conversion, adjusted net income was $26.4 million, or $1.53 per diluted share, in the quarter. Adjusted net income for the first half of 2026 was $51.7 million, or $2.99 per diluted share.

President and Chief Executive Officer Ray Reitsma said the quarter continued to reflect the company’s “commercial expertise generating a strong return profile.” He highlighted a 1.52% return on average assets, 14% return on average equity and 10% year-over-year earnings-per-share growth in the second quarter.

Net Interest Income Rises as Margin Holds Firm

Christmas said net interest income increased by $7.8 million in the second quarter and $15.1 million in the first six months of 2026 compared with the respective prior-year periods. The increase primarily reflected growth in earning assets and a higher net interest margin.

Average earning assets totaled $6.43 billion in the second quarter, up from $5.73 billion a year earlier. The net interest margin was 3.59%, compared with 3.48% in the second quarter of 2025. Christmas said the improvement was “largely due to the Eastern Michigan acquisition.”

Reitsma said the company’s margin performance showed that Mercantile had effectively matched funding of assets and liabilities. He noted that over the last five quarters, the 90-day average SOFR rate fell 71 basis points while the company’s margin increased 11 basis points to 3.59%.

Christmas said management expects a higher net interest margin in the second half of 2026 compared with the first half, citing expected commercial loan growth, lower balances at the Federal Reserve Bank of Chicago and the maturity of low-yielding fixed-rate commercial real estate loans and investments.

Loan Growth Improves, Deposits Strengthen

Reitsma said commercial loan growth in the second quarter totaled $115 million, an annualized rate of 11.7%. He said loan payoffs moderated from the prior four quarters, falling by $60 million compared with the previous quarter. Commitments to make new commercial loans totaled $224 million at June 30, while commitments to fund existing commercial and residential construction loans totaled $283 million. Both were at or near five-quarter highs.

The company expects loan growth for 2026 to fall within its prior guidance range of mid-single-digit percentages. Christmas later said the company is projecting annualized loan growth of 5% to 7% in each quarter for the remainder of 2026.

Deposits also grew. Reitsma said deposit growth for the 12 months ended June 30 was 12.4%, with growth in non-interest-bearing accounts outpacing interest-bearing accounts. The loan-to-deposit ratio was 93% at the end of the second quarter, compared with 100% at June 30, 2025, and 110% at the end of 2023.

Mercantile’s deposit mix at quarter-end included 27% non-interest-bearing deposits and 24% lower-cost deposits, up from 25% and 20%, respectively, a year earlier. Reitsma said the Eastern Michigan acquisition contributed positively to these measures.

Credit Quality Remains Strong

Management emphasized asset quality throughout the call. Reitsma said non-performing assets were nine basis points of total assets as of June 30, while non-performing loans to total loans had averaged 12 basis points over the last six and a half years. The allowance for credit losses stood at 1.13% of total loans and was nearly 10 times the dollar amount of non-performing loans.

Christmas said Mercantile recorded negative provisions for credit losses of $1.8 million in the second quarter and $3.6 million in the first half of 2026. The second-quarter negative provision mainly reflected the elimination of a $2.7 million specific allocation after resolution of a non-performing commercial construction loan. That was partially offset by changes in the economic forecast, allocations tied to net loan growth and higher qualitative factor allocations.

During the question-and-answer session, Christmas said the reserve ratio has generally been between the current 1.13% level and the low 120-basis-point range for some time. Barring a significant change in the economy, he said he would expect the coverage ratio to remain around the mid-teens to low-120s basis-point range.

Fee Income and Expenses Increase

Reitsma said growth in commercial deposit relationships helped drive a 35% increase in service charges on accounts during the second quarter compared with the year-earlier period. Credit and debit card offerings grew 21% in the first six months of 2026 compared with the same period in 2025.

Non-interest expenses rose by $6.0 million in the quarter and $17.0 million in the first half compared with the prior-year periods. Excluding one-time costs related to the core and digital banking conversion and Eastern Michigan acquisition, non-interest expenses increased by $5.4 million in the quarter and $13.1 million in the first half.

Christmas said the increase in core operating costs largely reflected higher salary and benefit costs, as well as inflation and a larger balance sheet. In response to an analyst question, he said the company had been hiring aggressively in operational areas to support the core conversion and training, while also investing in Southeast Michigan commercial and treasury management personnel.

Capital, Outlook and Q Themes

Christmas said both Mercantile Bank and Eastern Michigan Bank remained well-capitalized. Mercantile Bank’s total risk-based capital ratio was 13.5% at June 30, while Eastern Michigan Bank’s ratio was 23.1%. The company did not repurchase shares during the quarter and had $6.8 million remaining under its current repurchase plan.

Management’s outlook assumes no changes in the federal funds rate for the remainder of 2026, though Christmas said Mercantile expects its margin to remain relatively stable even in a changing rate environment. He said the company has used match funding and balance sheet management to reduce the impact of rate changes.

In the Q, Christmas said Mercantile expects to exit the brokered CD market by the end of 2026, with only about $20 million remaining in two certificates of deposit that mature in December. He also said excess cash of roughly $100 million to $125 million could be redeployed into loans by early next year, if not by year-end, depending on net commercial loan growth.

Reitsma said the Southeast Michigan market remains an important growth opportunity, but he added that loan originations are spread across the company’s footprint, including Grand Rapids, West Michigan, Central Michigan and Northern Michigan.

About Mercantile Bank (NASDAQ:MBWM)

Mercantile Bank Corporation (NASDAQ: MBWM) is the bank holding company for Mercantile Bank of Michigan, a full-service commercial bank headquartered in Grand Rapids, Michigan. Through its state-chartered subsidiary, the company provides a broad range of financial products and services to small and mid-sized businesses, professionals and consumers across West and Central Michigan.

The bank's core offerings include deposit products such as checking, savings and money market accounts, alongside commercial and consumer loan portfolios.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected].

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