Finance

Mercantile's Net Interest Income Growth Accelerates

The Tip Desk · November 8, 2026 · 4 min read

Net interest income rose 17.1% to $60.9 million as the margin reached 3.73% and local deposits cut the loan-to-deposit ratio to 88.3%.

Mercantile Bank Corporation (MBWM), a Grand Rapids–based Michigan holding company, reported net interest income of $60.9 million in the third quarter of 2026, up 17.1% from a year earlier, as year-over-year growth accelerated from 15.7% in the second quarter. Eastern Michigan Bank contributed $5.8 million of that total.

Net interest margin was 3.73%, up from 3.49% in the third quarter of 2025. The company said the expansion reflected a lower cost of funds, commercial loan growth, and upward repricing of matured fixed-rate loans and securities. Cost of funds fell to 1.79% from 2.25%, on lower money-market and time-deposit rates, a higher share of low-cost products after adding Eastern Michigan Bank’s deposits, and a reduction in brokered deposits.

Yield on average earning assets declined to 5.52% from 5.74%. Loan yield fell to 6.12% from 6.35% after the Federal Open Market Committee cut the targeted federal funds rate in September, October, and December 2025, when average variable-rate commercial loans were about 77% of average commercial loans. Securities yield rose to 3.43% from 2.90%. The company said mix shifted toward securities and away from loans, reflecting a strategic initiative to reduce the loan-to-deposit ratio and the onboarding of Eastern Michigan Bank’s liquid balance sheet.

Net revenue, including noninterest income, was $73.2 million, up 17.3% from $62.4 million a year earlier. Noninterest income totaled $12.3 million, up 18.4%, led by treasury management fees of about 28% higher, plus higher interest-rate swap income and mortgage banking income. Eastern Michigan Bank generated $0.5 million of noninterest income, mainly deposit service charges.

Total loans rose $37.4 million, or an annualized 3.0%, in the quarter. Commercial loans increased $20.4 million, or an annualized 2.0%, despite $147 million of payoffs and paydowns versus a historical average of about $50 million per quarter. Residential mortgage loans increased $13.2 million and other consumer loans $3.8 million.

Local deposits grew $438 million, or an annualized 11.4%, in the first nine months of 2026, while brokered deposits fell $110 million. Total deposits were $5.61 billion as of September 30, 2026. The loan-to-deposit ratio fell to 88.3% from 92.8% at June 30, 2026 and 91.2% at year-end 2025. Noninterest-bearing checking was about 26% of deposits. Wholesale funds declined to $325 million, or about 5% of total funds, from $457 million, or about 8%, at year-end 2025.

Provision for credit losses was $0.7 million, versus $0.2 million a year earlier, reflecting $1.7 million of specific allocations and $0.7 million of qualitative-factor increases plus $0.6 million for net loan growth, partly offset by a $1.5 million reserve decrease from faster residential and consumer prepayments. Loan charge-offs were less than $0.1 million with $0.3 million of recoveries, producing net recoveries of $0.3 million, or an annualized 0.02% of average loans. Nonperforming assets were $9.8 million, or 0.1% of assets, matching the September 30, 2025 dollar level but down from 0.2% of assets then.

Net income was $24.1 million, or $1.39 a share, compared with $23.8 million, or $1.46 a share, a year earlier. Adjusted net income, excluding after-tax Eastern Michigan acquisition and core-and-digital conversion costs, was $24.5 million, or $1.42 a share. Noninterest expense was $43.6 million versus $34.8 million a year earlier; excluding conversion and acquisition costs, expense rose $8.8 million on higher salaries, bonus accruals, merit increases, and Southeast Michigan hiring. The effective tax rate rose to 16.8% from 13.4% as transferable energy tax-credit benefits declined.

Mercantile Bank and Eastern Michigan Bank remained well-capitalized, with total risk-based capital ratios of 13.4% and 23.9% and about $200 million and $39 million of excess over the 10% well-capitalized threshold. President and Chief Executive Officer Ray Reitsma said the core and digital banking system conversion is expected in the first quarter of 2027 as originally planned.

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