Mercantile Bank (NASDAQ:MBWM) used its fourth-quarter 2025 earnings call to highlight steady profitability, stable margins despite a shifting rate environment, and the completed acquisition of Eastern Michigan Bank at year-end. Management also discussed credit quality trends, expense drivers, and key assumptions underpinning its 2026 outlook.
Acquisition closes as management emphasizes “commercial expertise” theme
President and CEO Ray Reitsma said the company’s 2025 results continued to reflect a strategy centered on commercial banking execution and a strong return profile. A major milestone was the consummation of Mercantile’s purchase of Eastern Michigan Bank on Dec. 31, 2025, which Reitsma said advanced strategic objectives related to deposit and loan growth and margin stability.
Fourth-quarter and full-year earnings rise on higher net interest income and lower taxes
Executive Vice President and CFO Chuck Christmas reported fourth-quarter 2025 net income of $22.8 million, or $1.40 per diluted share, up from $19.6 million, or $1.22 per diluted share, in the fourth quarter of 2024. For the full year, net income totaled $88.8 million, or $5.47 per diluted share, compared with $79.6 million, or $4.93 per diluted share, in 2024.
Christmas said the increase in earnings in both periods largely reflected:
- Higher net interest income and non-interest income
- Lower provision expense
- Reduced federal income tax expense
- Partially offset by higher overhead costs
Reitsma framed the full-year performance as an 11% year-over-year EPS increase, alongside a 1.4% return on average assets and a 14.1% return on average equity for 2025. He also pointed to tangible book value per share growth of about 11% over the last four quarters.
Net interest margin remains stable as deposits outpace loans
Management repeatedly returned to the theme of net interest margin (NIM) stability. Reitsma said that over the last five quarters the 90-day average SOFR rate fell 68 basis points while the bank’s margin increased 2 basis points to 3.43%, which he said supported the company’s view that it is not meaningfully asset-sensitive despite a relatively large portion of floating-rate assets.
Christmas said quarterly NIM has ranged from 3.49% to 3.41% over the past five quarters, averaging 3.46%. The fourth-quarter 2025 NIM increased 2 basis points versus the year-ago quarter. He attributed the comparative stability to match-funding and balance sheet management actions, while acknowledging that the bank’s strategy to lower its loan-to-deposit ratio has meant deposit growth exceeding loan growth and incremental funds being deployed into securities that yield less than loans.
In the fourth quarter, average loans were $4.63 billion, up $62 million year over year, while average deposits rose $302 million to $4.83 billion. Christmas said the $240 million net surplus of funds was used to grow the average securities portfolio by $160 million and reduce average Federal Home Loan Bank of Indianapolis advances by $73 million. The cost of deposits was down 32 basis points in the fourth quarter compared with the prior-year period.
Credit quality and reserve position described as strong
Reitsma emphasized what he called “very strong asset quality,” noting past-due loans of 11 basis points of total loans and stating that non-performing loans to total loans have averaged 12 basis points over the last six years. The allowance for credit losses stood at 1.21% of total loans as of Dec. 31, 2025.
Christmas reported a negative provision expense of $0.7 million in the fourth quarter, compared with provision expense of $1.5 million in the year-ago quarter. For the full year, provision expense was $3.2 million, down from $7.4 million in 2024. He said the fourth-quarter negative provision was primarily driven by an improved economic forecast, changes in loan mix, and relatively low net loan growth due to larger-than-typical commercial loan payoffs.
For 2025, Christmas said provision expense included reserve increases tied to forecast changes, higher specific allocations (including an allocation for a commercial construction loan relationship placed on non-accrual in the second quarter), and changes in qualitative factors, partially offset by reductions related to residential mortgage portfolio duration and baseline loss rates.
2026 outlook: loan growth target, margin lift from Eastern, and investment-heavy expense profile
Management described 2026 guidance assumptions as challenging amid volatile market conditions. Christmas said the company’s forecast assumes no changes in the federal funds rate during 2026. Within that framework, the bank is projecting loan growth in a range of 5% to 7% annualized during each quarter, reflecting a strong commercial pipeline but also expected meaningful payoffs in the coming months. Reitsma said payoffs were elevated in the fourth quarter and are expected to remain high in the first quarter, but he cited a “historically high” backlog and said payoffs should settle down later in the year.
On margin, Christmas said the bank expects first-quarter 2026 NIM to increase from fourth-quarter 2025, largely due to the Eastern acquisition, with further steady improvement throughout the year as lower-yielding fixed-rate commercial real estate loans and investments mature and as other balance sheet repricing dynamics take effect. In response to analyst questions, management said purchase accounting accretion on Eastern’s loan portfolio was about $125,000 net per quarter, and that the acquired securities portfolio provided additional benefit because it was marked to current market levels at closing and carried at a higher yield.
Non-interest expense is expected to reflect investments made late in 2025 and planned for 2026 to support expansion in Southeast Michigan, as well as operational areas as the company switches core and digital banking providers. Christmas said meaningful personnel-related cost savings from the Eastern acquisition are expected later, characterizing them as “more of a 2027 event,” in part because the banks will remain separate for a period. He also said non-interest expense projections include quarterly core deposit and tangible amortization of $0.9 million.
On taxes, Christmas said fourth-quarter and full-year 2025 effective tax rates were about 12% and 14%, respectively, aided by transferable energy tax credits and benefits from low-income housing and historical tax credit activities. For 2026, the company is projecting a federal tax rate of 17% that incorporates continued tax credit benefits and additional, but lower, levels of transferable energy tax credit investments.
Capital remained a focus as well. Christmas said Mercantile ended 2025 with a total risk-based capital ratio of 13.8%, and Eastern Michigan Bank’s ratio was 15.3%, with both above “well-capitalized” thresholds. The company did not repurchase shares in 2025 and had $6.8 million remaining under its current repurchase plan. In response to questions, Christmas said management’s appetite for buybacks was stronger than it had been over the last 12 to 18 months, but noted that stock price and valuation would factor into any decisions.
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.
