Executive Summary

Q2 2025 EPS of $1.39 beat Wall Street by ~$0.14, driven by higher net interest income, a lower provision, and a $1.5M federal tax benefit from transferable energy tax credits that reduced the effective tax rate to 12.9% . EPS consensus: $1.255; Actual: $1.39. Revenue consensus: $60.0M; S&P actual: $59.3M—slight miss even as company “net revenue” printed $60.9M; definitional differences likely explain the divergence .*
Net interest margin remained stable sequentially at 3.49% (Q2), up 8 bps vs Q4 2024, though down 14 bps YoY due to 2024 Fed cuts and an earning-asset mix shift toward securities; deposit costs fell 18 bps YoY .
Noninterest income rose 18.4% YoY led by mortgage banking, swaps, treasury management, and payroll services; management expects back-half fee income to normalize to ~$9M–$10M per quarter from Q2’s strong print .
Strategic catalysts: definitive agreement to acquire Eastern Michigan Financial ($95.8M) adding a top-tier core deposit franchise (42 bps cost of deposits, 46% L/D), with expected ~11% EPS accretion at full synergies and core conversion to Jack Henry by early 2027; regular cash dividend increased to $0.38 (up ~3% QoQ) .

What Went Well and What Went Wrong

What Went Well

EPS beat on stronger net interest income and tax credit benefits: “We are very pleased with the…significant reduction in federal tax expense, mainly reflecting the tax benefit received from the acquisition of transferable energy tax credits” .
Broad-based fee momentum: Mortgage banking income up on intent-to-sell mix (79%) and originations +16% YoY; treasury management and payroll fees rose; swaps rebounded as borrower expectations aligned .
Deposit base strengthening and risk discipline: Local deposits up 13% YoY; loan-to-deposit ratio improved from 107% (6/30/24) to ~100% (6/30/25); asset quality metrics remain robust (NPAs 0.16% of assets; net recoveries) .

What Went Wrong

Margin and mix headwinds YoY: NIM fell 14 bps YoY as earning-asset yields declined 30 bps with 2024 Fed cuts and a shift from higher-yield loans to lower-yield securities to lower L/D and add liquidity .
Nonperforming assets increased due to one construction loan placed on nonaccrual (~57% of NPAs); provision included a $2.5M specific allocation despite otherwise strong credit trends .
Operating expense pressure: Noninterest expense up $3.6M YoY from salary/benefits, data processing, higher health claims, and reserve for unfunded commitments; efficiency ratio rose to 54.77% .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Diluted EPS ($)	$1.22	$1.21	$1.39
Net Interest Income ($MM)	$48.36	$48.55	$49.48
Noninterest Income ($MM)	$10.17	$8.70	$11.46
Net Interest Margin (%)	3.41%	3.47%	3.49%

Measure	Consensus	Actual	Surprise
EPS ($)	1.255	1.39	+0.135
Revenue ($)	60,023,500	59,341,000	-682,500
Values retrieved from S&P Global.*

Note: Company-reported “net revenue” (net interest income + noninterest income) was $60.9M in Q2 2025 ; S&P actual revenue definition differs.

KPIs and Balance Sheet

KPI	Q2 2024	Q1 2025	Q2 2025
Total Assets ($B)	$5.60	$6.14	$6.18
Total Loans ($B)	$4.44	$4.64	$4.70
Total Deposits ($B)	$4.15	$4.68	$4.71
Noninterest-bearing Deposits ($B)	$1.12	$1.17	$1.18
Loan-to-Deposit Ratio (%)	107%	N/A	100%
ROA (%)	1.36	1.32	1.50
ROE (%)	13.93	13.34	14.72
Efficiency Ratio (%)	52.40	54.33	54.77
NPA ($MM) / % Assets	$9.1 / 0.2%	$5.4 / 0.09%	$9.7 / 0.16%
Net Loan Charge-offs (annualized, %)	(0.02%)	(0.01%)	(0.01%)
Allowance to Loans (%)	1.25%	1.22%	1.24%

Loan Portfolio Composition

Category ($MM)	Q2 2024	Q2 2025
Commercial & Industrial	$1,275.7	$1,375.4
Owner-Occupied CRE	$732.8	$725.1
Non-Owner-Occupied CRE	$1,059.1	$1,134.0
Land Dev & Construction	$76.2	$67.5
Multifamily & Residential Rental	$389.4	$519.2
1-4 Family Mortgages	$849.6	$799.4
Other Consumer	$55.3	$77.4
Total Loans	$4,438.2	$4,698.0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin (%)	Q3 2025	N/A	3.50%–3.60%	New
Net Interest Margin (%)	Q4 2025	N/A	3.55%–3.65%	New
Loan Growth (%)	Q3 2025	N/A	1%–2% (payoffs in CRE expected)	New
Loan Growth (%)	Q4 2025	N/A	3%–5%	New
Federal Tax Rate (%)	Q3 2025	N/A	~16% (reflects energy tax credit)	New
Federal Tax Rate (%)	Q4 2025	N/A	~19%	New
Noninterest Income ($MM)	H2 2025	N/A	~$9–$10 per quarter (step-down from Q2)	New
Dividend per Share ($)	Q3 2025	$0.37	$0.38	Raised
M&A Synergies (Cost Saves)	2026 / 2027	N/A	~$5.5M total; ~50% in 2026, >90% in 2027 post core conversion	New
Core System	By Q1 2027	N/A	Jack Henry conversion timing and integration plan	New
Rate Sensitivity (NIM)	If Fed cuts	N/A	~3–4 bps NIM reduction per 25 bp cut (near-term)	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024, Q1 2025)	Current Period (Q2 2025)	Trend
Net Interest Margin	3.41% in Q4; 3.47% in Q1	3.49%; stable seq; YoY lower due to 2024 cuts & mix	Stabilizing sequentially
Deposit Strategy & L/D	YE 2024 L/D 98%; focus on local deposit growth	L/D ~100%; local deposits +13% YoY; aim ≤95% longer-term	Improving liquidity
Mortgage Banking	Q4/Q1 income moderate ($3.77M/$2.46M sale gains proxy)	Strong: 79% sell intent; originations +16% YoY	Strengthening
Swaps & Fee Income	Variable across quarters	Swaps rebounded; fees up; guide normalizing to $9–$10M/quarter	Strong Q2; normalize
Asset Quality	NPAs 0.09% assets in Q1	NPAs 0.16% on one construction loan; net recoveries; ACL 1.24%	Still solid; single credit
M&A & Core	N/A	EFIN deal (~11% EPS accretive); Jack Henry by Q1’27	Strategic expansion
Macro / Tariffs	N/A	Tariff-induced concerns eased; projects commenced	Improving activity
Rate Sensitivity	N/A	~3–4 bps NIM hit per 25 bp cut	Downside if cuts resume

Management Commentary

“Growth in earning assets more than outweighed the impact of the lower net interest margin, providing for a higher level of net interest income…we are very pleased with…significant reduction in federal tax expense…” — Ray Reitsma, CEO .
“We are projecting loan growth of 1%-2% in Q3 and 3%-5% in Q4; NIM in a range of 3.50%-3.60% (Q3) and 3.55%-3.65% (Q4); projected tax rate of ~16% (Q3) and ~19% (Q4)” — Chuck Christmas, CFO .
On EFIN: “Double-digit earnings accretion, mid-single-digit tangible book value dilution, and a mid-three-year earn-back period… decades of experience with Jack Henry…will help ensure transition is frictionless” — CEO .

Q&A Highlights

Cost saves and timing: ~$5.5M synergies, ~50% realized in 2026, >90% in 2027; Jack Henry conversion aligned with contract expiration to avoid termination fees .
Eastern Michigan loan book: High quality; focus to grow mortgage banking and larger/commercial lending in the footprint; abundant C&I opportunities statewide .
Deposit mix and growth: Intent to replace brokered deposits with local; deposit growth must keep pace with 5%–8% loan growth over time .
Securities and liquidity: No expected securities sales; laddered maturities fund loans opportunistically .
Closing timing: Back half of Q4 (Nov 30 or year-end), subject to regulatory approvals .
Rate sensitivity: ~3–4 bps NIM reduction per 25 bp Fed cut near term .

Estimates Context

Q2 2025 EPS: $1.39 vs consensus $1.255 — strong beat, aided by tax credits ($1.5M benefit) and higher net interest income; # of estimates: 4.*
Q2 2025 Revenue: S&P actual $59.34M vs consensus $60.02M — slight miss; note company-reported “net revenue” was $60.9M (definition difference). # of estimates: 4.* Values retrieved from S&P Global.*

Implications: Street EPS estimates likely need upward revision to reflect tax credit cadence (additional ~$0.75M tax benefit scheduled end of July) and operating momentum, while revenue forecasts should align to the company’s “net revenue” construct or harmonize S&P’s definition with bank reporting .

Key Takeaways for Investors

EPS strength is durable near term: sequential NIM stability, loan growth outlook, and tax credit planning support above-consensus EPS in H2 barring aggressive Fed cuts (each 25 bps cut implies ~3–4 bps NIM pressure) .
Fee income normalization: Expect swaps and mortgage to step down to $9–$10M per quarter in H2; watch mortgage mix (intent-to-sell) and macro rates for upside/downside .
Liquidity and funding: L/D improved to ~100%; EFIN adds low-cost, core deposits (42 bps cost), reducing funding costs and supporting organic loan growth without wholesale reliance .
Credit watch: Single construction nonaccrual drove NPAs higher; otherwise metrics remain strong with net recoveries and ACL at 1.24%—track CRE payoff cadence and any sector stress .
Strategic catalysts: EFIN integration and Jack Henry core transformation (Q1’27) should enhance efficiency and growth; modeled EPS accretion (~11%) at full synergies is meaningful .
Capital return: Dividend increased to $0.38; with ROE ~14.7% and well-capitalized ratios (Total RBC 13.9%), cash returns remain supported by earnings power .
Trading lens: Near-term stock drivers include continued EPS beats, clarity on tax credit repeatability, deposit mix improvement, and M&A/regulatory milestones (EFIN close by late Q4) .

*Values retrieved from S&P Global.

MERCANTILE BANK CORP (MBWM)·Q2 2025 Earnings Summary