Mercantile Bank Corporation Announces Strong First Quarter 2025 Results

Growth in net interest income, notable increases in certain noninterest income categories, sustained strength in asset quality metrics, and continuing solid capital position highlight the quarter

GRAND RAPIDS, Mich., April 22, 2025 /PRNewswire/ -- Mercantile Bank Corporation (NASDAQ:MBWM) ("Mercantile") reported net income of $19.5 million, or $1.21 per diluted share, for the first quarter of 2025, compared with net income of $21.6 million, or $1.34 per diluted share, for the first quarter of 2024.

"We are pleased to report sustained strength in financial metrics during the first quarter of 2025.  We believe these results continue to evidence our ability to effectively manage challenges emanating from ongoing uncertain economic and operating environments," said Ray Reitsma, President and Chief Executive Officer of Mercantile.  "The strong operating performance reflected net interest income expansion, a steadying net interest margin, higher levels of treasury management, mortgage banking, and payroll service income, and continuing strength in asset quality metrics.  Notably, net growth in various local deposit relationships and newly established deposit relationships substantially offset customary seasonal deposit withdrawals, and we remain committed to lowering our loan-to-deposit ratio through local deposit generation."

First quarter highlights include:

• Net interest income expansion
• Noteworthy increases in treasury management, mortgage banking, and payroll income
• Net growth in various local deposit relationships and new local deposit relationships largely offset customary seasonal deposit withdrawals
• Continuing low levels of nonperforming assets, past due loans, and loan charge-offs
• Strong capital position

Operating Results

Net revenue, consisting of net interest income and noninterest income, was $57.2 million during the first quarter of 2025, down $1.0 million, or 1.7 percent, from $58.2 million during the prior-year first quarter.  Net interest income during the first three months of 2025 was $48.6 million, up $1.2 million, or 2.5 percent, from $47.4 million during the respective 2024 period as growth in earning assets more than offset a lower net interest margin.  Noninterest income totaled $8.7 million during the first quarter of 2025, compared to $10.9 million during the first quarter of 2024.  Higher levels of treasury management fees, mortgage banking income, and payroll service fees were more than offset by declines in interest rate swap income, revenue generated from an investment in a private equity fund, and bank owned life insurance income.

The net interest margin was 3.47 percent in the first quarter of 2025, down from 3.74 percent in the prior-year first quarter.  The yield on average earning assets was 5.74 percent during the current-year first quarter, a decrease from 6.06 percent during the respective 2024 period.  The lower yield primarily resulted from a decreased yield on loans and a change in earning asset mix, which more than offset an enhanced yield on securities stemming from reinvestment and portfolio expansion activities in a higher interest rate environment.  The yield on loans was 6.31 percent during the first quarter of 2025, down from 6.65 percent during the first quarter of 2024 mainly due to lower interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee ("FOMC") lowering the targeted federal funds rate.  The FOMC decreased the targeted federal funds rate by 50 basis points in September of 2024 and 25 basis points in each of November and December of 2024, during which time average variable-rate commercial loans represented approximately 73 percent of average total commercial loans.  Signifying the success of a strategic initiative to reduce the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans represented a reduced percentage of earning assets and lower-yielding securities and interest-earning deposits accounted for increased percentages of earning assets in the first quarter of 2025 compared to the first quarter of 2024.

During the first quarter of 2025, the cost of funds was 2.27 percent, down from 2.32 percent in the first quarter of 2024 mainly due to lower rates paid on money market accounts, reflecting the decreased interest rate environment that began in September of 2024 in conjunction with the FOMC's lowering of the targeted federal funds rate.  A change in funding mix, primarily consisting of a decline in average noninterest-bearing checking accounts and growth in average higher-cost money market accounts and time deposits, negatively impacted the cost of funds during the first three months of 2025.  The increases in money market accounts and time deposits reflected new deposit relationships, growth in existing deposit relationships, and deposit migration.

Mercantile recorded provisions for credit losses of $2.1 million and $1.3 million during the first quarters of 2025 and 2024, respectively.  The provision expense recorded during the current-year first quarter primarily reflected an increased allocation necessitated by changes to the economic forecast.  The provision expense recorded during the first quarter of 2024 mainly reflected an individual allocation for a nonperforming commercial loan relationship, allocations necessitated by net loan growth, and a change in a commercial loan environmental factor, which more than offset the impacts of an improved economic forecast and changes to the loan portfolio composition. The recording of net loan recoveries and sustained strength in loan quality metrics during both periods largely mitigated additional reserves associated with loan growth.

Noninterest income totaled $8.7 million during the first quarter of 2025, down from $10.9 million during the respective 2024 period as growth in treasury management fees, mortgage banking income, and payroll service fees was more than offset by lower levels of interest rate swap income, revenue generated from an investment in a private equity fund, and bank owned life insurance income.  The higher level of mortgage banking income mainly resulted from increases in the percentage of loans originated with the intent to sell, which equaled approximately 80 percent during the current-year first quarter compared to approximately 74 percent during the first quarter of 2024, and total loan originations, which were up approximately 26 percent during the first quarter of 2025 compared to the corresponding 2024 period.  During the first quarter of 2025, interest rate swap income, which sometimes varies greatly from period to period due to the timing of closing transactions, was negatively impacted by the ongoing uncertainty surrounding economic and operating conditions and the associated reduction in commercial loan activity. Noninterest income during the first three months of 2024 included bank owned life insurance claims totaling $0.7 million.

Noninterest expense totaled $31.1 million during the first quarter of 2025, compared to $29.9 million during the prior-year first quarter.  The increase primarily resulted from higher salary and benefit costs, largely reflecting annual merit pay increases and market adjustments.  A higher level of data processing costs, mainly reflecting increased software support costs, also contributed to the rise in noninterest expense.  Noninterest expense during the first quarter of 2024 included contributions to The Mercantile Bank Foundation totaling $0.7 million.

Mr. Reitsma commented, "The notable increase in mortgage banking income during the first quarter of 2025 primarily reflected the ongoing success of planned initiatives to amplify the percentage of loans originated with the intent to sell and maintain solid loan production.  We are pleased with the growth in treasury management and payroll service fees, largely reflecting customers' increased use of products and services and our sales team's effectiveness in marketing them to existing and new clients.  Although declining as anticipated from the first quarter of 2024 due to a lower yield on average earning assets, our net interest margin has remained relatively steady during the past three quarters.  The impact of the lower net interest margin was more than offset by growth in earning assets, providing for an increase in net interest income.  We remain committed to expanding the balance sheet in a cost-effective manner and continually examine our operating segments to identify opportunities to function more efficiently while continuing to deliver outstanding service to our customers and provide them with market-leading products and services to meet their needs."

Balance Sheet

As of March 31, 2025, total assets were $6.14 billion, up $89.0 million from December 31, 2024.  Total loans increased $35.8 million, or an annualized 3.2 percent, during the first quarter of 2025, primarily reflecting growth in commercial loans of $44.3 million.  Commercial loans grew an annualized 4.8 percent during the current-year first quarter despite the full payoffs and partial paydowns of certain larger relationships, which aggregated approximately $55 million during the period.  The payoffs and paydowns mainly stemmed from customers using excess cash flows generated within their operations to make line of credit reductions, as well as from sales of assets.  Residential mortgage loans declined $10.4 million, and other consumer loans were up $1.9 million during the first three months of 2025.  During the first quarter of 2025, securities available for sale grew $57.2 million, and interest-earning deposits declined $20.9 million.

As of March 31, 2025, unfunded commitments on commercial construction and development loans, which are expected to be funded over the next 12 to 18 months, and residential construction loans, which are expected to be largely funded over the next 12 months, totaled $210 million and $30 million, respectively.

Commercial and industrial loans and owner-occupied commercial real estate loans combined represented approximately 54 percent of total commercial loans as of March 31, 2025, a level that has remained relatively consistent with prior periods and in line with our expectations.

Total deposits as of March 31, 2025, were $4.68 billion, down $16.6 million, or 0.4 percent, from December 31, 2024, but were up $674 million, or 16.8 percent, from March 31, 2024.  Local deposits decreased $16.6 million during the first quarter of 2025, while brokered deposits were essentially unchanged.  The slight reduction in local deposits during the current-year first quarter primarily resulted from the customary level of seasonal noninterest-bearing deposit withdrawals by customers to make bonus and tax payments and partnership distributions, the impact of which was substantially offset by net growth in various existing deposit relationships and new client acquisitions.  The decrease in total deposits and loan portfolio expansion during the first three months of 2025 resulted in a nominal increase in the loan-to-deposit ratio from 98 percent at year-end 2024 to 99 percent as of March 31, 2025.  As of March 31, 2024, the loan-to-deposit ratio was 108 percent.  Wholesale funds were $516 million and $537 million as of March 31, 2025, and December 31, 2024, respectively, with both amounts representing approximately 10 percent of total funds as of the respective dates.  Noninterest-bearing checking accounts represented approximately 25 percent of total deposits as of March 31, 2025.

Mr. Reitsma noted, "The commercial loan portfolio grew during the first quarter of 2025 notwithstanding partial paydowns and full payoffs and a decline in commercial lending activities stemming from the ongoing uncertain economic and operating environments.  Based on our current pipeline and ongoing discussions with current and prospective borrowers, we believe ample opportunities to originate commercial loans will be available in future periods.  Our near-term objective remains to grow our local deposit base in an effort to lower our loan-to-deposit ratio while limiting the use of wholesale funds to fund loan originations and investment purchases."

Asset Quality

Nonperforming assets totaled $5.4 million, or less than 0.1 percent of total assets, at March 31, 2025, compared to $5.7 million, or less than 0.1 percent of total assets, at December 31, 2024, and $6.2 million, or 0.1 percent of total assets, at March 31, 2024.  The level of past due loans remains nominal.  During the first quarter of 2025, loan charge-offs totaled $0.1 million, while recoveries of prior period loan charge-offs equaled $0.2 million, providing for net loan recoveries of $0.1 million, or an annualized 0.01 percent of average total loans.

Mr. Reitsma remarked, "As evidenced by the sustained strength in asset quality metrics during the first quarter of 2025, including ongoing low levels of nonperforming assets, past due loans, and loan charge-offs, we remain committed to underwriting loans in a proper and disciplined manner.  The early detection and reporting of weakening commercial credit relationships and developing sector-specific or systemic credit issues remain top priorities, and we believe our continuing focus on the use of these important credit monitoring tools will limit the impact of such on our overall financial condition.  Our residential mortgage loan and consumer loan portfolios continue to perform well, with both portfolios exhibiting low delinquency and charge-off levels."

Capital Position

Shareholders' equity totaled $608 million as of March 31, 2025, up $23.8 million from December 31, 2024.  Mercantile Bank maintained "well-capitalized" positions at the end of the first quarter of 2025 and year-end 2024, with a total risk-based capital ratio of 14.0 percent and 13.9 percent, respectively.  As of March 31, 2025, Mercantile Bank had approximately $217 million in excess of the 10 percent minimum regulatory threshold required to be categorized as a "well-capitalized" institution. 

All of Mercantile Bank's investments are categorized as available-for-sale.  As of March 31, 2025, the net unrealized loss on these investments totaled $51.5 million, resulting in an after-tax reduction to equity capital of $40.7 million.  As of December 31, 2024, the net unrealized loss on these investments totaled $63.1 million, resulting in an after-tax reduction to equity capital of $49.8 million.  Although unrealized gains and losses on investments are excluded from regulatory capital ratio calculations, Mercantile Bank's excess capital over the minimum regulatory requirement to be considered a "well-capitalized" institution would approximate $178 million on an adjusted basis as of March 31, 2025.

Mercantile reported 16,235,660 total shares outstanding as of March 31, 2025.

Mr. Reitsma concluded, "Our ongoing financial strength has enabled us to continue our regular cash dividend program and provide shareholders with meaningful cash returns on their investments.  We believe our strong capital position, operating results, and asset quality metrics will allow us to effectively address potential issues arising from shifting economic and operating conditions.  Our community banking philosophy and passionate focus on meeting customers' needs have been instrumental in retaining existing relationships and securing new relationships, and we believe these inherent traits will be key components of our efforts to reduce our loan-to-deposit ratio through local deposit generation."

Investor Presentation

Mercantile has prepared presentation materials that management intends to use during its previously announced first quarter 2025 conference call on Tuesday, April 22, 2025, at 10:00 a.m. Eastern Time, and from time to time thereafter in presentations about the company's operations and performance.  These materials, which are available for viewing in the Investor Relations section of Mercantile's website at www.mercbank.com, have been furnished to the U.S. Securities and Exchange Commission concurrently with this press release.

About Mercantile Bank Corporation

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank. Mercantile provides financial products and services in a professional and personalized manner designed to make banking easier for businesses, individuals, and governmental units. Distinguished by exceptional service, knowledgeable staff, and a commitment to the communities it serves, Mercantile is one of the largest Michigan-based banks with assets of approximately $6.1 billion. Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "MBWM."  For more information about Mercantile, visit www.mercbank.com, and follow us on Facebook, Instagram, X (formerly Twitter) @MercBank, and LinkedIn @merc-bank.

Forward-Looking Statements

This news release contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.  Any such statements are based on current expectations that involve a number of risks and uncertainties.  Actual results may differ materially from the results expressed in forward-looking statements.  Factors that might cause such a difference include changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and nontraditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the COVID-19 pandemic or similar public health threats, and measures implemented to combat them; and other factors, including those expressed as risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission.  Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.  Investors are cautioned not to place undue reliance on any forward-looking statements contained herein.

 

 

 

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SOURCE Mercantile Bank Corporation