Executive Summary

EPS of $1.46 beat S&P Global consensus $1.38, driven by net interest income growth, a stable 3.50% NIM, and a sharply lower 13.4% effective tax rate from energy/historic tax credits (consensus via S&P Global; see asterisk note). Net revenue (NII + noninterest) was $62.4M vs $61.4M consensus (beat) .*
NIM held essentially flat at 3.50% despite Fed cuts; cost of funds fell to 2.25% and loan-to-deposit ratio declined to 96% on local deposit growth, improving liquidity and funding mix .
Credit quality remained robust: NPAs 0.16% of assets, allowance 1.28% of loans, net recoveries in the quarter; the one notable nonaccrual construction credit remains well-reserved with specific allocations increased in Q2/Q3 .
Outlook: management expects Q4 loan growth of 5–7% annualized, NIM to remain within the recent range, and a ~15% tax rate; EMFC acquisition enhances liquidity/NIM with major cost saves starting post-core conversion in 2027 .
Dividend raised to $0.38 (annual yield ~3.4%), signaling confidence and capital strength; tangible book rose ~13% YTD to $37.41 .

Note: Consensus estimates from S&P Global are marked with an asterisk and noted at the end.

What Went Well and What Went Wrong

What Went Well

Stable margin and expanding NII: “Our net interest margin has remained strong and relatively steady over the past five quarters,” supporting NII growth to $52.0M (+7.7% YoY) .
Fee momentum in core categories: treasury management (+~11%) and payroll services (+~16%) supported noninterest income growth; card income also strong .
Tax optimization lowered ETR: effective tax rate dropped to ~13% in Q3 (from ~20% YoY) via transferable energy tax credits and low-income/historic tax credit benefits; CFO outlined another ~$0.95M tax credit closing post-Q3 .

What Went Wrong

Loan balances contracted in Q3 as anticipated paydowns were concentrated in the quarter; management characterized it as a one-quarter anomaly with record commitments ($307M) entering Q4 .
Expenses elevated: salaries/benefits and data processing rose; Q3 included acquisition costs and a foundation contribution; Q4 outlook embeds ~$1M additional acquisition-related costs .
Specific problem loan: a commercial construction relationship moved to nonaccrual (Q2) required an additional ~$3.1M specific allocation in Q3; management remains aggressive on reserving .

Financial Results

Headline vs Consensus (Q3 2025)

Metric	Actual	S&P Consensus*
Diluted EPS ($)	1.46	1.378*
Net Revenue ($M)	62.4	61.4*

Note: Company-reported net revenue is NII + noninterest income; we anchor estimate comparisons on S&P Global consensus.*

Quarterly P&L Summary (oldest → newest)

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Net Revenue ($M)	58.0	57.2	60.9	62.4
Net Interest Income ($M)	48.292	48.548	49.479	52.002
Noninterest Income ($M)	9.667	8.702	11.462	10.388
Provision for Credit Losses ($M)	1.1	2.1	1.6	0.2
Noninterest Expense ($M)	32.303	31.104	33.379	34.750
Net Income ($M)	19.618	19.537	22.618	23.758
Diluted EPS ($)	1.22	1.21	1.39	1.46

Margins & Profitability (oldest → newest)

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
NIM (FTE)	3.52%	3.47%	3.49%	3.50%
ROA	1.35%	1.32%	1.50%	1.50%
ROE	13.73%	13.34%	14.72%	14.72%
Efficiency Ratio	55.73%	54.33%	54.77%	55.70%

Balance Sheet & Credit

Metric	Sep 30, 2024	Dec 31, 2024	Jun 30, 2025	Sep 30, 2025
Loans (EOP, $M)	4,553.0	4,600.8	4,698.0	4,615.2
Deposits (EOP, $M)	4,455.9	4,698.4	4,710.5	4,811.8
Loan-to-Deposit Ratio	102%	98%	100%	96%
Nonperforming Assets/Assets	0.17%	0.09%	0.16%	0.16%
Allowance/Loans	1.24%	1.18%	1.24%	1.28%
Net Charge-offs to Avg Loans (Quarter)	(0.01%)	0.31%	(0.01%)	(0.05%)
Noninterest-bearing Deposit Mix	~25%	~25%	~25%	~25%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Loan growth (annualized)	Q4 2025	Not previously specified numerically	5%–7% annualized	Initiated
NIM	Q4 2025	Not previously specified numerically	Remain within recent 5-quarter range (stable)	Maintained stability
Federal tax rate	Q4 2025	Not previously specified numerically	~15%	Initiated
Noninterest expense	Q4 2025	Not previously specified numerically	Includes ~$1M acquisition costs (assumes year-end EMFC close)	Higher due to M&A
Dividend	Q4 2025	$0.36 (Q4’24)	$0.38 declared, payable Dec 17, 2025	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1–Q2 2025)	Current Period (Q3 2025)	Trend
Interest rates & NIM	NIM steadying as asset yields fell; cost of funds down with mix headwind	NIM 3.50%; stable outlook into Q4 despite another 25 bp cut; back-book repricing tailwind sized (securities ~$90M at ~1%, CRE ~$160M at ~4.5%)	Stable; modest asset-side tailwinds offset rate cuts
Deposits & L/D ratio	Focus on local deposit growth; L/D up to ~100% in Q2 from 98% YE	Local deposits up; L/D reduced to 96% as securities and deposits grew	Improving liquidity/funding
Credit quality	Low NPAs; specific nonaccrual construction credit emerged in Q2 with reserve	NPAs 0.16%; further specific allocation (~$3.1M) in Q3; net recoveries continue	Strong overall; single name contained
Fee income	Mortgage banking momentum (higher sale %), treasury/payroll growth	Continued strength in treasury/payroll; card income volume-driven growth	Positive mix
Taxes (credits)	Energy tax credits lowered ETR to ~13% in Q2	ETR ~13.4%; more credits expected; guide ~15% for Q4	Structurally lower ETR (with credits)
M&A (EMFC)	Definitive agreement announced; enhances liquidity and deposit franchise	Accretive EPS; TBV earn-back mid-3 years; major cost saves post-core conversion in Feb-2027	Strategically positive; synergy timing later

Management Commentary

“Our net interest margin has remained strong and relatively steady over the past five quarters, with ongoing growth in earning assets providing for net interest income expansion.”
“Loan-to-deposit ratio stands at 96% compared to 102% on September 30, 2024… deposit mix includes 25% non-interest-bearing deposits.”
“We are projecting loan growth in a range of 5% to 7% annualized during the fourth quarter… forecasting our net interest margin to remain relatively steady… projecting a federal tax rate of 15% for the quarter.”
“We have about $90 million in securities at ~1% and ~$160 million in CRE loans at ~4.5% maturing next year… significant opportunity to gain interest income even if market rates come down.”
On the specific credit: “We have been very aggressive in putting specific allocations against that credit.”

Q&A Highlights

Margin durability: Management expects NIM to remain relatively steady as deposit repricing is tied to Fed funds and back-book assets reprice higher; EMFC adds a NIM tailwind offsetting rate cut headwinds .
Deposit pricing: Money market rates adjust basis point-for-basis point with Fed moves; most time deposits mature within one year, implying ~50 bp reduction opportunity at today’s rates (post-cut) .
Loan growth cadence: Q3 contraction driven by lumpy paydowns; pipeline at record; Q4 guide 5–7% annualized with potential upside depending on late-quarter closings .
Expenses: Q3 run-rate clean excluding foundation and acquisition costs; Q4 includes ~$1M EMFC closing costs; no Q4 income consolidation assumed .
Tax rate: Without purchased credits, 2026 ETR would trend ~17.5–18%; plan is to continue credits, targeting ~16% if fully utilized (subject to availability/due diligence) .

Estimates Context

Q3 2025 vs S&P Global consensus: EPS $1.46 vs $1.378 (beat); revenue $62.4M vs $61.4M (beat). Company results reflect NII growth, fee momentum, and a materially lower tax rate (~13.4%) .*
Forward consensus implications: Models likely need to reflect management’s Q4 assumptions (loan growth 5–7% annualized, steady NIM, ~15% ETR, ~$1M one-time M&A expense) and later synergy timing (cost saves primarily post-core conversion in 2027) .*

Key Takeaways for Investors

Core profitability strong and improving: EPS and net revenue outperformed consensus with resilient NIM and broad-based fee contributions .*
Funding and liquidity trajectory positive: local deposit growth and securities build drove L/D down to 96%, de-risking funding and supporting margin stability .
Credit risk contained: benign charge-offs and low NPAs; the lone construction nonaccrual is well-reserved after Q2/Q3 specific allocations .
Tax credits are a meaningful lever: sub-15% ETR in Q3 and ~15% guided for Q4 support EPS; additional credits planned, but subject to diligence/availability .
Expense optics: Near-term elevated by ~$1M EMFC closing costs in Q4; core expense trajectory otherwise consistent with prior run-rates excluding discrete items .
EMFC combination: strategically enhances liquidity and NIM; EPS accretive with TBV earn-back mid-3 years; major cost saves realize post-2027 core conversion, tempering near-term synergy expectations .
Tactical setup: With margin stability despite cuts, deposit repricing tailwinds, and record loan commitments, near-term momentum into Q4 appears constructive; monitor timing of closings and expense normalization after M&A charges .

Additional Detail

Dividend: Board declared a $0.38 quarterly dividend (payable Dec 17, 2025), up nearly 6% vs Q4’24, implying a ~3.4% yield at announcement .
Tangible book: Tangible book value per share increased to $37.41 (+~13% YTD), aided by retained earnings and improvement in AOCI from narrower unrealized securities losses .

Footnote on estimates: *Values retrieved from S&P Global.

MERCANTILE BANK CORP (MBWM)·Q3 2025 Earnings Summary