Mercantile Bank Q2 2026 Earnings Call: Complete Transcript

Mercantile Bank (NASDAQ: MBWM ) held its second-quarter earnings conference call on Tuesday.

Below is the complete transcript from the call.

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View the webcast at Summary Mercantile Bank reported strong asset quality, with nonperforming assets at 9 basis points and nonperforming loans averaging 12 basis points over the past six years.

The loan-to-deposit ratio improved to 93% in Q2 2026 from 100% a year prior, aided by a 12.4% increase in deposits.

Commercial loan growth was robust, with $115 million added in Q2 2026, and commitments for new loans and construction loans reached five-quarter highs.

Key fee income categories, like treasury management services, saw a 35% increase in service charges, while credit and debit card offerings grew by 21% in H1 2026.

Net revenue increased by 15.3% in H1 2026, with a 10% EPS growth in Q2 2026 year-over-year and a 14% return on average equity.

The integration with Eastern Michigan is proceeding well, contributing positively to financial metrics such as net interest income.

The company expects loan growth in the mid-single-digit percentages for 2026 and projects a stable net interest margin amidst a volatile interest rate environment.

Net income for Q2 2026 was $25.9 million, up from $22.6 million in Q2 2025, driven by increased net interest income and lower provision expenses.

Mercantile Bank maintains strong capital positions, with a total risk-based capital ratio of 13.5% as of June 30, 2026.

Future guidance includes a 5% to 7% annualized loan growth and stable net interest margins, with anticipated benefits from maturing low-yield investments.

Full Transcript Ray Reitsma, President & Chief Executive Officer Floating-rate assets.

Very strong asset quality.

Nonperforming assets to total assets remain at the low levels typical of our company at 9 basis points of total assets as of June 30, 2026.

Nonperforming loans to total loans over the last six and a half years average 12 basis points.

The allowance for credit losses stands at 1.13% of total loans as of June 30, 2026, and on a dollar volume basis was nearly 10 times the level of nonperforming loans, providing a very strong coverage relative to past due nonperforming loan levels.

These numbers demonstrate our longstanding commitment to excellence in loan underwriting and administration.

Improved on-balance-sheet liquidity and loan-to-deposit ratio.

At the end of the second quarter of 2026 our loan-to-deposit ratio stood at 93% compared to 100% at June 30, 2025, and 91% on December 31, 2025, 98% on December 31, 2024, and 110% on December 31, 2023.

As of June 30, 2026, our deposit mix included 27% noninterest-bearing deposits and 24% lower-cost deposits, up from 25% and 20%, respectively, at the end of the second quarter of 2025, which has contributed to the stability of our net margin.

Net interest margin.

Our acquisition of Eastern Michigan contributed positively to these measures.

Deposit growth during the 12 months ended June 30, 2026 was 12.4%, with growth in the noninterest-bearing accounts outpacing the growth in interest-bearing accounts during that period.

Our recent focus on deposit growth is not new to our bank.

In fact, the last five year-end periods demonstrate a deposit compounded annual growth rate of 9.2%.

Strong commercial loan growth.

Commercial loan growth in the second quarter of 2026 was $115 million, an annualized growth rate of 11.7%.

As foreshadowed in the prior quarter's commentary, loan payoffs did moderate from the prior four quarters' experience, reducing by $60 million compared to the prior quarter.

As of June 30, 2026, commitments to make new commercial loans total $224 million and commitments to fund existing commercial and residential construction loans total $283 million, with each amount at or near five-quarter highs.

We expect that loan growth for 2026 will fall within the range of previously defined expectations of mid-single-digit percentages.

Continued strong growth in key fee income categories.

Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 35% increase in service charges on accounts during the second quarter of 2026 compared to the second quarter of 2025.

Our credit and debit card offerings report growth of 21% in the first six months of 2026 compared to the respective 2025 period.