Mercantile Bank Q4 2025 Mercantile Bank Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Mercantile Bank Corp Earnings Call
Operator: Welcome to the Mercantile Bank Q4 earnings results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.
Speaker #1: Please note, this event is being recorded. I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank.
Speaker #1: Please go ahead.
Nichole Kladder: Hello, and thank you for joining us. Today, we will cover the company's financial results for Q4 of 2025.
Speaker #2: Hello, and thank you for joining us. Today, we will cover the company's financial results for the fourth quarter of 2025. The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer, as well as Charles Christmas, Executive Vice President and Chief Financial Officer.
Operator: The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer, as well as Chuck Christmas, Executive Vice President and Chief Financial Officer. Our agenda will begin with prepared remarks by both Ray and Chuck, and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com. After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission filings.
The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer, as well as Chuck Christmas, Executive Vice President and Chief Financial Officer. Our agenda will begin with prepared remarks by both Ray and Chuck, and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com.
Speaker #2: Our agenda will begin with prepared remarks by both Ray and Charles, and will include references to our presentation covering this quarter's results. You can access a copy of the presentation, as well as the press release sent earlier today, by visiting merckbank.com.
After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission filings.
Speaker #2: After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business.
Speaker #2: The company's actual results could differ materially from any forward-looking statement made today due to factors described in the company's latest Securities and Exchange Commission filings.
Speaker #2: The company assumes no obligation to update any forward-looking statements made during the call. Let's begin, Ray.
Operator: The company assumes no obligation to update any forward-looking statements made during the call. Let's begin, Ray. Thanks, Nicole. Our results for 2025 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of our purchase of Eastern Michigan Bank on 31 December 2025 represents execution of our strategic objectives around deposit and loan growth, and margin stability, paired with strong asset quality, and overall financial performance. We continue to demonstrate top quartile ROA performance relative to our peers, built upon the following traits. Trait number one: strong and durable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 68 basis points, while our margin increased by 2 basis points to 3.43%.
The company assumes no obligation to update any forward-looking statements made during the call. Let's begin, Ray.
Ray Reitsma: Thanks, Nicole. Our results for 2025 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of our purchase of Eastern Michigan Bank on 31 December 2025 represents execution of our strategic objectives around deposit and loan growth, and margin stability, paired with strong asset quality, and overall financial performance. We continue to demonstrate top quartile ROA performance relative to our peers, built upon the following traits. Trait number one: strong and durable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 68 basis points, while our margin increased by 2 basis points to 3.43%.
Speaker #3: Thanks, Nichole. Our results for 2025 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of our purchase of Eastern Michigan Bank on December 31, 2025, represents execution of our strategic objectives around deposit and loan growth and margin stability, paired with strong asset quality and overall financial performance.
Speaker #3: We continue to demonstrate top-quartile ROA performance relative to our peers, built upon the following traits. Trait number one: strong and durable net interest margin.
Speaker #3: Over the last five quarters, the SOFR 90-day average rate has dropped 68 basis points, while our margin increased by two basis points to 3.43%.
Speaker #3: This illustrates effective execution of our strategic objective to maintain a steady margin by match-funding our assets and liabilities, and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large portion of floating rate assets.
Operator: This illustrates effective execution of our strategic objective to maintain a steady margin by match-funding our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet, despite the relatively large portion of floating-rate assets. Trait number two: very strong asset quality. Past due loans remain at low levels, typical of our company, at 11 basis points of total loans. Non-performing loans to total loans over the last six years average 12 basis points. The allowance for credit losses stands at 1.21% of total loans as of 31 December 2025, providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our longstanding commitment to excellence in underwriting and loan administration. Trait number three: improved on-balance sheet liquidity and loan-to-deposit ratio. Our loan-to-deposit ratio stands at 91%, compared to 98% on 31 December 2024, and 110% on 31 December 2023.
This illustrates effective execution of our strategic objective to maintain a steady margin by match-funding our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet, despite the relatively large portion of floating-rate assets. Trait number two: very strong asset quality. Past due loans remain at low levels, typical of our company, at 11 basis points of total loans. Non-performing loans to total loans over the last six years average 12 basis points.
Speaker #3: Trait number two, very strong asset quality. As do loans remain at low levels, typical of our company, at 11 basis points of total loans.
Speaker #3: Nonperforming loans to total loans over the last six years averaged 12 basis points. The allowance for credit losses stands at 1.21% of total loans, as of December 31, 2025, providing very strong coverage relative to past due and nonperforming loan levels.
The allowance for credit losses stands at 1.21% of total loans as of 31 December 2025, providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our longstanding commitment to excellence in underwriting and loan administration. Trait number three: improved on-balance sheet liquidity and loan-to-deposit ratio. Our loan-to-deposit ratio stands at 91%, compared to 98% on 31 December 2024, and 110% on 31 December 2023.
Speaker #3: These numbers demonstrate our longstanding commitment to excellence in underwriting and loan administration. Trait number three: improved on-balance sheet liquidity and loan-to-deposit ratio. Our loan-to-deposit ratio stands at 91%, compared to 98% on December 31, 2024, and 110% on December 31, 2023.
Speaker #3: Our deposit mix includes 25% non-interest-bearing deposits and 24% lower-cost deposits, an increase from 20% in the prior quarter. This has contributed to the stability of our net interest margin.
Operator: Our deposit mix includes 25% non-interest-bearing deposits and 24% lower-cost deposits, an increase from 20% in the prior quarter, which has contributed to the stability of our net interest margin. Our acquisition of Eastern Michigan Bank contributed positively to these measures. Trait number four: strong deposit and loan compounded annual growth. 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%. Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%. Loan growth will continue to be impacted by an elevated level of loan payoffs compared to historical norms in Q1 2026. However, 31 December 2025 commitments to make loans totaled $297 million, and commitments to make commercial and residential construction loans totaled $271 million. Each of these represents historically high levels.
Our deposit mix includes 25% non-interest-bearing deposits and 24% lower-cost deposits, an increase from 20% in the prior quarter, which has contributed to the stability of our net interest margin. Our acquisition of Eastern Michigan Bank contributed positively to these measures. Trait number four: strong deposit and loan compounded annual growth. 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%.
Speaker #3: Our acquisition of Eastern Michigan Bank contributed positively to these measures. Trait number four: strong deposit and loan compounded annual growth. Our recent focus on deposit growth is not due to our bank.
Speaker #3: In fact, the last five-year end periods demonstrate a deposit compounded annual growth rate of 9.2%. Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%.
Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%. Loan growth will continue to be impacted by an elevated level of loan payoffs compared to historical norms in Q1 2026. However, 31 December 2025 commitments to make loans totaled $297 million, and commitments to make commercial and residential construction loans totaled $271 million. Each of these represents historically high levels.
Speaker #3: Loan growth will continue to be impacted by an elevated level of loan payoffs compared to historical norms in the first quarter of 2026. However, as of December 31, 2025, commitments to make loans total $297 million, and commitments to make commercial and residential construction loans total $271 million.
Speaker #3: Each of these represent historically high levels. We expect that growth for 2026 will fall within the range of previously defined expectations of mid-single digits.
Operator: We expect that growth for 2026 will fall within the range of previously defined expectations of mid-single digits. Trait number five: continued strong growth in key fee-income categories. Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 19% increase in service charges on accounts during 2025. Our payroll service offerings continue to report very consistent growth, and the current year's growth of 14% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of saleable loans, contributing to a 6% growth in mortgage banking income compared to the respective 2024 period. Trait number six: stability in commercial loan portfolio mix.
We expect that growth for 2026 will fall within the range of previously defined expectations of mid-single digits. Trait number five: continued strong growth in key fee-income categories. Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 19% increase in service charges on accounts during 2025. Our payroll service offerings continue to report very consistent growth, and the current year's growth of 14% is consistent with prior periods.
Speaker #3: Trait number five: continued strong growth in key fee-income categories. Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 19% increase in service charges on accounts during 2025.
Speaker #3: Our payroll service offerings continue to report very consistent growth, and the current year's growth of 14% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of saleable loans, contributing to a 6% growth in mortgage banking income compared to the respective 2024 period.
Our mortgage team continues to build market share and generate a high portion of saleable loans, contributing to a 6% growth in mortgage banking income compared to the respective 2024 period. Trait number six: stability in commercial loan portfolio mix.
Speaker #3: Trait number six, stability in commercial loan portfolio mix. We have maintained discipline in our approach to commercial loan growth, maintaining a 55-45 split between C&I and owner-occupied CRE loans, combined with other commercial loan segments and proven concentration in categories such as office, retail, assisted living, hotel, and automotive exposures.
Operator: We have maintained discipline in our approach to commercial loan growth, maintaining a 55-45 split between C&I and owner-occupied CRE loans combined with other commercial loan segments, and proven concentration in categories such as office, retail, assisted living, hotel, and automotive exposures. In sum, these traits have allowed us to report a year-over-year EPS growth rate of 11%, a 1.4% return on average assets, a 14.1% return on average equity for 2025, and an 11% increase in tangible book value per share over the last four quarters. Additionally, our tangible book value per share compounded annual growth rate of 9%, and five-year earnings per share compounded annual growth rate of 15.1% historically places us in the top of our peer group, our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation.
We have maintained discipline in our approach to commercial loan growth, maintaining a 55-45 split between C&I and owner-occupied CRE loans combined with other commercial loan segments, and proven concentration in categories such as office, retail, assisted living, hotel, and automotive exposures. In sum, these traits have allowed us to report a year-over-year EPS growth rate of 11%, a 1.4% return on average assets, a 14.1% return on average equity for 2025, and an 11% increase in tangible book value per share over the last four quarters.
Speaker #3: In sum, these traits have allowed us to report a year-over-year EPS growth rate of 11%, a 1.4% return on average assets, a 14.1% return on average equity for 2025, and an 11% increase in tangible book value per share over the last four quarters.
Additionally, our tangible book value per share compounded annual growth rate of 9%, and five-year earnings per share compounded annual growth rate of 15.1% historically places us in the top of our peer group, our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation.
Speaker #3: Additionally, our tangible book value per share compounded annual growth rate of 9% in five years, and earnings per share compounded annual growth rate of 15.1%, historically places us at the top of our peer group.
Speaker #3: Our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation. The integration of operations is underway, and the cultures have meshed very well in the early stages of the process.
Operator: The integration of operations is underway, and the cultures have meshed very well in the early stages of the process. That concludes my remarks, and I will now turn the call over to Chuck. Thanks, Ray. This morning, we announced net income of $22.8 million, or $1.40 per diluted share, for the fourth quarter of 2025, compared with net income of $19.6 million, or $1.22 per diluted share, for the fourth quarter of 2024. Net income during all of 2025 totaled $88.8 million, or $5.47 per diluted share, compared to $79.6 million, or $4.93 per diluted share for all of 2024. Growth in net income during both time frames largely reflected increased net interest income and non-interest income, lower provision expense, and reduced federal income tax expense, which more than offset increased overhead costs.
The integration of operations is underway, and the cultures have meshed very well in the early stages of the process. That concludes my remarks, and I will now turn the call over to Chuck.
Speaker #3: That concludes my remarks. I will now turn the call over to
Chuck Christmas: Thanks, Ray. This morning, we announced net income of $22.8 million, or $1.40 per diluted share, for the fourth quarter of 2025, compared with net income of $19.6 million, or $1.22 per diluted share, for the fourth quarter of 2024. Net income during all of 2025 totaled $88.8 million, or $5.47 per diluted share, compared to $79.6 million, or $4.93 per diluted share for all of 2024. Growth in net income during both time frames largely reflected increased net interest income and non-interest income, lower provision expense, and reduced federal income tax expense, which more than offset increased overhead costs.
Speaker #4: Thanks, Ray. This morning, we announced net income of $22.8 million, or $1.40 per diluted share, for the fourth quarter of 2025, compared with net income of $19.6 million, or $1.22 per diluted share, for the fourth quarter of 2024.
Speaker #4: Net income during all of 2025 totaled $88.8 million, or $5.47 per diluted share, compared to $79.6 million, or $4.93 per diluted share, for all of 2024.
Speaker #4: Growth in net income during both time frames largely reflected increased net interest income and non-interest income. Lower provision expense and reduced federal income tax expense more than offset increased overhead costs.
Speaker #4: Interest income on loans declined during the fourth quarter and all of 2025 compared to the prior-year periods, reflecting a lower yield on loans that was not fully mitigated by loan growth.
Operator: Interest income on loans declined during the fourth quarter and all of 2025 compared to the prior year periods, reflecting a lower yield on loans that was not fully mitigated by loan growth. Our yield on loans during the fourth quarter of 2025 was 26 basis points lower than the fourth quarter of 2024, largely reflecting the aggregate 75 basis point decrease in the federal funds rate during the last four months of 2025. Average loans totaled $4.63 billion during the fourth quarter of 2025, compared to $4.57 billion during the fourth quarter of 2024, an increase of $62 million. Interest income on securities increased during the fourth quarter and all of 2025 compared to the prior year periods, reflecting growth in the securities portfolio and the reinvestment of lower-yielding maturing investments.
Interest income on loans declined during the fourth quarter and all of 2025 compared to the prior year periods, reflecting a lower yield on loans that was not fully mitigated by loan growth. Our yield on loans during the fourth quarter of 2025 was 26 basis points lower than the fourth quarter of 2024, largely reflecting the aggregate 75 basis point decrease in the federal funds rate during the last four months of 2025.
Speaker #4: Our yield on loans during the fourth quarter of 2025 was 26 basis points lower than the fourth quarter of 2024, largely reflecting the aggregate 75 basis point decrease in the federal funds rate during the last four months of 2025.
Average loans totaled $4.63 billion during the fourth quarter of 2025, compared to $4.57 billion during the fourth quarter of 2024, an increase of $62 million. Interest income on securities increased during the fourth quarter and all of 2025 compared to the prior year periods, reflecting growth in the securities portfolio and the reinvestment of lower-yielding maturing investments.
Speaker #4: Average loans totaled $4.63 billion during the fourth quarter of 2025, compared to $4.57 billion during the fourth quarter of 2024, an increase of $62 million.
Speaker #4: Interest income on securities increased during the fourth quarter and all of 2025, compared to the prior year periods, reflecting growth in the securities portfolio and the reinvestment of lower yielding maturing investments.
Speaker #4: Interest income on other earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, declined during the fourth quarter of 2025, compared to the fourth quarter of 2024, reflecting a lower average yield that more than offset a higher average balance.
Operator: Interest income on other earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, declined during Q4 2025 compared to Q4 2024, reflecting a lower average yield that more than offset a higher average balance. Interest income on other earning assets increased during all of 2025 compared to all of 2024, reflecting a higher average balance that was partially offset by a lower yield. In total, interest income was $0.2 million lower and $8.7 million higher during Q4 2025 and all of 2025 compared to the respective prior year periods.
Interest income on other earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, declined during Q4 2025 compared to Q4 2024, reflecting a lower average yield that more than offset a higher average balance. Interest income on other earning assets increased during all of 2025 compared to all of 2024, reflecting a higher average balance that was partially offset by a lower yield. In total, interest income was $0.2 million lower and $8.7 million higher during Q4 2025 and all of 2025 compared to the respective prior year periods.
Speaker #4: Interest income on other earning assets increased during all of 2025, compared to all of 2024, reflecting a higher average balance that was partially offset by a lower yield.
Speaker #4: In total, interest income was $0.2 million lower and $8.7 million higher during the fourth quarter and all of 2025, compared to the respective prior-year periods.
Speaker #4: Interest expense on deposits decreased during the fourth quarter of 2025, compared to the prior-year period, in large part due to a lower average cost of deposits reflecting the aforementioned decline in the federal funds rate, which more than offset growth in average deposits.
Operator: Interest expense on deposits decreased during Q4 2025 compared to the prior-year period, in large part due to a lower average cost of deposits reflecting the aforementioned decline in the federal funds rate that more than offset growth in average deposits. Average deposits totaled $4.83 billion during Q4 2025, compared to $4.52 billion during Q4 2024, an increase of $302 million. The cost of deposits was down 32 basis points during Q4 2025 compared to Q4 2024. Conversely, interest expense on deposits increased during all of 2025 compared to all of 2024. Although the cost of deposits declined 23 basis points, growth in average deposits between the two periods of $483 million resulted in a net increase in interest expense on deposits.
Interest expense on deposits decreased during Q4 2025 compared to the prior-year period, in large part due to a lower average cost of deposits reflecting the aforementioned decline in the federal funds rate that more than offset growth in average deposits. Average deposits totaled $4.83 billion during Q4 2025, compared to $4.52 billion during Q4 2024, an increase of $302 million.
Speaker #4: Average deposits totaled $4.83 billion during the fourth quarter of 2025, compared to $4.52 billion during the fourth quarter of 2024, an increase of $302 million.
The cost of deposits was down 32 basis points during Q4 2025 compared to Q4 2024. Conversely, interest expense on deposits increased during all of 2025 compared to all of 2024. Although the cost of deposits declined 23 basis points, growth in average deposits between the two periods of $483 million resulted in a net increase in interest expense on deposits.
Speaker #4: The cost of deposits was down 32 basis points during the fourth quarter of 2025, compared to the fourth quarter of 2024. Conversely, interest expense on deposits increased during all of 2025, compared to all of 2024.
Speaker #4: Although the cost of deposits declined 23 basis points, growth in average deposits between the two periods of $483 million resulted in a net increase in interest expense on deposits.
Speaker #4: Interest expense on the Federal Home Loan Bank of Indianapolis advances declined during the fourth quarter, and all of 2025, compared to the prior year periods, reflecting lower average balance.
Operator: Interest expense on the Federal Home Loan Bank of Indianapolis advances declined during the fourth quarter and all of 2025 compared to the prior year periods, reflecting a lower average balance. Interest expense on other borrowed funds declined during the fourth quarter and all of 2025 compared to the prior year periods, largely reflecting lower rates on our trust-preferred securities due to the lower interest rate environment. In total, interest expense was $2.9 million and $1.3 million lower during the fourth quarter of 2025 and all of 2025 compared to the respective prior year periods. Net interest income increased $2.7 million and $10.0 million during the fourth quarter and all of 2025 compared to the respective prior year time periods.
Interest expense on the Federal Home Loan Bank of Indianapolis advances declined during the fourth quarter and all of 2025 compared to the prior year periods, reflecting a lower average balance. Interest expense on other borrowed funds declined during the fourth quarter and all of 2025 compared to the prior year periods, largely reflecting lower rates on our trust-preferred securities due to the lower interest rate environment.
Speaker #4: Interest expense on other borrowed funds declined during the fourth quarter and all of 2025, compared to the prior year periods, largely reflecting lower rates on our trust preferred securities due to the lower interest rate environment.
Speaker #4: In total, interest expense was $2.9 million and $1.3 million lower during the fourth quarter of 2025 and all of 2025, compared to the respective prior year periods.
In total, interest expense was $2.9 million and $1.3 million lower during the fourth quarter of 2025 and all of 2025 compared to the respective prior year periods. Net interest income increased $2.7 million and $10.0 million during the fourth quarter and all of 2025 compared to the respective prior year time periods.
Speaker #4: Net interest income increased $2.7 million and $10.0 million during the fourth quarter and all of 2025, compared to the respective prior year time periods.
Speaker #4: Impacting our net interest margin over the past couple of years has been our strategic initiative to lower the loan-to-deposit ratio. We've generally entailed deposit growth exceeding loan growth and using the additional monies to purchase securities.
Operator: Impacting our net interest margin over the past couple of years has been our strategic initiative to lower the loan-to-deposit ratio, which generally entails deposit growth exceeding loan growth, and using the additional monies to purchase securities. A large portion of deposit growth has been in higher-yielding money market and time deposit products, while the purchased securities provide a lower yield than loan products. Despite that strategic initiative and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been relatively stable over the past five quarters, ranging from a high of 3.49% to a low of 3.41%, averaging 3.46%. We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environments on our net interest margin.
Impacting our net interest margin over the past couple of years has been our strategic initiative to lower the loan-to-deposit ratio, which generally entails deposit growth exceeding loan growth, and using the additional monies to purchase securities. A large portion of deposit growth has been in higher-yielding money market and time deposit products, while the purchased securities provide a lower yield than loan products.
Speaker #4: A large portion of deposit growth has been in higher-yielding money market and time deposit products, while the purchased securities provide a lower yield than loan products.
Speaker #4: Despite that strategic initiative, and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been relatively stable over the past five quarters, ranging from a high of 3.49% to a low of 3.41%, averaging 3.46%.
Despite that strategic initiative and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been relatively stable over the past five quarters, ranging from a high of 3.49% to a low of 3.41%, averaging 3.46%. We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environments on our net interest margin.
Speaker #4: We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environments on our net interest margin.
Speaker #4: Basic funds management practices, such as match funding combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities and higher-rate time deposits, along with scheduled rate adjustments on our residential mortgage loans, should provide for a relatively stable net interest margin in future periods.
Operator: Basic funds management practices such as match funding, combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities, and higher-rate time deposits, along with scheduled rate adjustments on our residential mortgage loans, should provide for a relatively stable net interest margin in future periods. Our net interest margin increased two basis points during Q4 2025 compared to Q4 2024. Our yield on earning assets declined 28 basis points during that time period, largely reflecting the aggregate 75 basis point decline in the federal funds rate during the last four months of 2025, while our cost of funds declined 30 basis points, primarily reflecting lower rates paid on money market and time deposits, which more than offset an increased mix of higher-costing money market and time deposits.
Basic funds management practices such as match funding, combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities, and higher-rate time deposits, along with scheduled rate adjustments on our residential mortgage loans, should provide for a relatively stable net interest margin in future periods. Our net interest margin increased two basis points during Q4 2025 compared to Q4 2024.
Speaker #4: Our net interest margin increased two basis points during the fourth quarter of 2025, compared to the fourth quarter of 2024. Our yield on earning assets declined 28 basis points during that time period, largely reflecting the aggregate 75 basis point decline in the federal funds rate during the last four months of 2025, while our cost of funds declined 30 basis points, primarily reflecting lower rates paid on money market and time deposits.
Our yield on earning assets declined 28 basis points during that time period, largely reflecting the aggregate 75 basis point decline in the federal funds rate during the last four months of 2025, while our cost of funds declined 30 basis points, primarily reflecting lower rates paid on money market and time deposits, which more than offset an increased mix of higher-costing money market and time deposits.
Speaker #4: Which more than offset an increased mix of higher-costing money market and time deposits. While average loans increased $62 million during the fourth quarter of 2025, compared to the fourth quarter of 2024, average deposits grew $302 million during the same time period, providing a net surplus of funds totaling $240 million. We used that net surplus of funds to grow our average securities portfolio by $160 million and reduce our average Federal Home Loan Bank of Indianapolis advances portfolio by $73 million.
Operator: While average loans increased $62 million during the fourth quarter of 2025 compared to the fourth quarter of 2024, average deposits grew $302 million during the same time period, providing a net surplus of funds totaling $240 million. We used that net surplus of funds to grow our average securities portfolio by $160 million and reduce our average Federal Home Loan Bank of Indianapolis advances portfolio by $73 million. We recorded a negative provision expense of $0.7 million and a provision expense of $3.2 million during the fourth quarter and all of 2025, respectively, compared to provision expense of $1.5 million and $7.4 million during the respective 2024 periods. The fourth quarter negative provision expense was primarily comprised of an improved economic forecast and changes in loan mix, and reflects relatively low net loan growth due to larger-than-typical commercial loan payoffs.
While average loans increased $62 million during the fourth quarter of 2025 compared to the fourth quarter of 2024, average deposits grew $302 million during the same time period, providing a net surplus of funds totaling $240 million. We used that net surplus of funds to grow our average securities portfolio by $160 million and reduce our average Federal Home Loan Bank of Indianapolis advances portfolio by $73 million.
We recorded a negative provision expense of $0.7 million and a provision expense of $3.2 million during the fourth quarter and all of 2025, respectively, compared to provision expense of $1.5 million and $7.4 million during the respective 2024 periods. The fourth quarter negative provision expense was primarily comprised of an improved economic forecast and changes in loan mix, and reflects relatively low net loan growth due to larger-than-typical commercial loan payoffs.
Speaker #4: We recorded a negative provision expense of $0.7 million and a provision expense of $3.2 million during the fourth quarter and all of 2025, respectively, compared to provision expense of $1.5 million and $7.4 million during the respective 2024 periods.
Speaker #4: The fourth quarter negative provision expense was primarily comprised of an improved economic forecast and changes in loan mix, and reflects relatively low net loan growth due to larger than typical commercial loan payoffs.
Speaker #4: The full year 2025 provision expense primarily reflected a $1.9 million reserve increase related to changes in the economic forecast, a $1.8 million net increase in specific allocations, driven by a $5.5 million allocation for a commercial construction loan relationship that was placed on non-accrual during the second quarter of 2025, and a $1.5 million net increase in qualitative factors.
Operator: The full year 2025 provision expense primarily reflected a $1.9 million reserve increase related to changes in the economic forecast, a $1.8 million net increase in specific allocations driven by a $5.5 million allocation for a commercial construction loan relationship that was placed on non-accrual during Q2 2025, and a $1.5 million net increase in qualitative factors, which were partially offset by a $2.3 million and $1.3 million reduction related to a shorter average duration of the residential mortgage loan portfolio resulting from faster prepayment speeds and changes in our baseline loss rates, respectively. The reserve balance decreased $0.9 million during Q4 2025, reflecting the negative $0.7 million provision expense and net charge-offs, net loan charge-offs of $2.6 million, partially mitigated from a $2.4 million increase associated with the acquisition of Eastern Michigan Bank.
The full year 2025 provision expense primarily reflected a $1.9 million reserve increase related to changes in the economic forecast, a $1.8 million net increase in specific allocations driven by a $5.5 million allocation for a commercial construction loan relationship that was placed on non-accrual during Q2 2025, and a $1.5 million net increase in qualitative factors, which were partially offset by a $2.3 million and $1.3 million reduction related to a shorter average duration of the residential mortgage loan portfolio resulting from faster prepayment speeds and changes in our baseline loss rates, respectively.
Speaker #4: Which were partially offset by a $2.3 million and $1.3 million reduction related to a shorter average duration of the residential mortgage loan portfolio, resulting from faster prepayment speeds and changes in our baseline loss rates, respectively.
The reserve balance decreased $0.9 million during Q4 2025, reflecting the negative $0.7 million provision expense and net charge-offs, net loan charge-offs of $2.6 million, partially mitigated from a $2.4 million increase associated with the acquisition of Eastern Michigan Bank.
Speaker #4: The reserve balance decreased $0.9 million during the fourth quarter of 2025, reflecting the negative $0.7 million provision expense and net charge-offs, net loan charge-offs of $2.6 million, partially mitigated from a $2.4 million increase associated with the acquisition of Eastern.
Speaker #4: The reserve balance increased $3.7 million during all of 2025, reflecting provision expense of $3.2 million and a $2.4 million increase associated with the Eastern acquisition.
Operator: The reserve balance increased $3.7 million during all of 2025, reflecting provision expense of $3.2 million and a $2.4 million increase associated with the Eastern acquisition, which more than offset net loan charge-offs of $1.9 million. The reserve balance equaled 1.21% of total loans as of year-end 2025 compared to 1.18% at year-end 2024. Non-interest expenses were $2.9 million and $10.2 million higher during the fourth quarter and all of 2025 compared to the respective prior year time periods. The increases during both time periods largely reflect higher salary and benefit costs, including annual merit pay increases and market adjustments. Higher data processing costs also comprise a notable portion of the increased non-interest expense levels, primarily reflecting higher transaction volume and software support costs, along with the introduction of new cash management products and services.
The reserve balance increased $3.7 million during all of 2025, reflecting provision expense of $3.2 million and a $2.4 million increase associated with the Eastern acquisition, which more than offset net loan charge-offs of $1.9 million. The reserve balance equaled 1.21% of total loans as of year-end 2025 compared to 1.18% at year-end 2024. Non-interest expenses were $2.9 million and $10.2 million higher during the fourth quarter and all of 2025 compared to the respective prior year time periods.
Speaker #4: This more than offset net loan charge-offs of $1.9 million. The reserve balance equaled 1.21% of total loans as of year-end 2025, compared to 1.18% at year-end 2024.
Speaker #4: Non-interest expenses were $2.9 million and $10.2 million higher during the fourth quarter and all of 2025, compared to the respective prior-year time periods.
Speaker #4: The increases during both time periods largely reflect higher salary and benefit costs, including annual merit pay increases and market adjustments. Higher data processing costs also comprise a notable portion of the increased non-interest expense levels, primarily reflecting higher transaction volume in software support costs, along with the introduction of new cash management products and services.
The increases during both time periods largely reflect higher salary and benefit costs, including annual merit pay increases and market adjustments. Higher data processing costs also comprise a notable portion of the increased non-interest expense levels, primarily reflecting higher transaction volume and software support costs, along with the introduction of new cash management products and services.
Speaker #4: Costs associated with the acquisition of Eastern totaled $1.2 million and $1.8 million during the fourth quarter and all of 2025, respectively. Allocations to the reserve for unfunded loan commitment largely reflect a sizable increase in the level of committed and accepted commercial loans increased 1.1 million and $1.6 million during the fourth quarter and all of 2025, compared to the respective prior year time periods.
Operator: Costs associated with the acquisition of Eastern totaled $1.2 million and $1.8 million during Q4 and all of 2025, respectively. Allocations to the reserve for unfunded loan commitment largely reflect a sizable increase in the level of committed and accepted commercial loans, increased $1.1 million and $1.6 million during Q4 and all of 2025 compared to the respective prior year time periods. Despite increased pre-tax income during Q4 and all of 2025 compared to the respective prior year periods, we were able to reduce our federal income tax expense by $0.4 million and $4.0 million, respectively. The reductions largely reflect the acquisition of transferable energy tax credits during 2025, providing for reductions in federal income tax expense of $1.0 million and $3.5 million during Q4 and all of 2025, respectively.
Costs associated with the acquisition of Eastern totaled $1.2 million and $1.8 million during Q4 and all of 2025, respectively. Allocations to the reserve for unfunded loan commitment largely reflect a sizable increase in the level of committed and accepted commercial loans, increased $1.1 million and $1.6 million during Q4 and all of 2025 compared to the respective prior year time periods.
Despite increased pre-tax income during Q4 and all of 2025 compared to the respective prior year periods, we were able to reduce our federal income tax expense by $0.4 million and $4.0 million, respectively. The reductions largely reflect the acquisition of transferable energy tax credits during 2025, providing for reductions in federal income tax expense of $1.0 million and $3.5 million during Q4 and all of 2025, respectively.
Speaker #4: Excuse me. Despite increased pre-tax income during the fourth quarter and all of 2025, compared to the respective prior year periods, we were able to reduce our federal income tax expense by 0.4 million and $4.0 million respectively.
Speaker #4: The reductions largely reflect the acquisition of transferable energy tax credits during 2025, providing for a reduction in federal income tax expense of $1.0 million and $3.5 million during the fourth quarter and all of 2025, respectively.
Speaker #4: Our federal income tax expense was further reduced by net benefits associated with our low-income housing and historical tax credit activities, which equaled 0.8 million and $1.8 million during the fourth quarter and all of 2025, respectively.
Operator: Our federal income tax expense was further reduced by net benefits associated with our low-income housing and historical tax credit activities, which equaled $0.8 million and $1.8 million during the fourth quarter and all of 2025, respectively. Recording of these tax benefits resulted in fourth quarter and full year 2025 effective tax rates of about 12% and 14%, respectively. Additional acquisitions of transferable energy tax credits may be made from time to time, subject to our investment policy, tax credit availability, and tax credits derived from our low-income housing and historical tax credit activities. We remain in a strong and well-capitalized regulatory capital position. Mercantile Bank's total risk-based capital ratio was 13.8% at year-end 2025, $213 million above the minimum threshold to be categorized as well-capitalized. Eastern Michigan Bank's total risk-based capital ratio was 15.3% at year-end 2025, $20 million above the minimum threshold to be categorized as well-capitalized.
Our federal income tax expense was further reduced by net benefits associated with our low-income housing and historical tax credit activities, which equaled $0.8 million and $1.8 million during the fourth quarter and all of 2025, respectively. Recording of these tax benefits resulted in fourth quarter and full year 2025 effective tax rates of about 12% and 14%, respectively.
Speaker #4: Recording of these tax benefits resulted in fourth quarter and full year 2025 effective tax rates of about 12% and 14%, respectively. Additional acquisitions of transferable energy tax credits may be made from time to time, subject to our investment policy, tax credit availability, and tax credits derived from our low-income housing and historical tax credit activities.
Additional acquisitions of transferable energy tax credits may be made from time to time, subject to our investment policy, tax credit availability, and tax credits derived from our low-income housing and historical tax credit activities. We remain in a strong and well-capitalized regulatory capital position. Mercantile Bank's total risk-based capital ratio was 13.8% at year-end 2025, $213 million above the minimum threshold to be categorized as well-capitalized. Eastern Michigan Bank's total risk-based capital ratio was 15.3% at year-end 2025, $20 million above the minimum threshold to be categorized as well-capitalized.
Speaker #4: We remain in a strong and well-capitalized regulatory capital position. Mercantile Banks' total risk-based capital ratio was 13.8% at year-end 2025, $213 million above the minimum threshold to be categorized as well-capitalized.
Speaker #4: Eastern Michigan Bank's total risk-based capital ratio was 15.3% at year-end 2025, $20 million above the minimum threshold to be categorized as well-capitalized. We did not repurchase shares during 2025.
Operator: We did not repurchase shares during 2025. We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow up $3.64, or almost 11%, during 2025. On slide 26 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for 2026, with the caveat that market conditions remain volatile, making forecasting difficult. This forecast is predicated on no changes in the federal funds rate during 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it did during 2025. We are projecting loan growth in a range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as expected meaningful payoffs over the next several months.
We did not repurchase shares during 2025. We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow up $3.64, or almost 11%, during 2025. On slide 26 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for 2026, with the caveat that market conditions remain volatile, making forecasting difficult.
Speaker #4: We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow, up $3.64, or almost 11%, during 2025.
Speaker #4: On slide 26 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for 2026, with a caveat that market conditions remain volatile, making forecasting difficult.
Speaker #4: This forecast is predicated on no changes in the federal funds rate during 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment, as it did during 2025.
This forecast is predicated on no changes in the federal funds rate during 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it did during 2025. We are projecting loan growth in a range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as expected meaningful payoffs over the next several months.
Speaker #4: We are projecting loan growth in a range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as expected meaningful payoffs over the next several months.
Speaker #4: We are forecasting our first quarter 2026 net interest margin to increase from the fourth quarter 2025 net interest margin, in large part reflecting the Eastern acquisition and further steady increases throughout the year as we benefit from maturing relatively low-yielding fixed-rate commercial real estate loans and investments, along with higher-yielding time deposits.
Operator: We are forecasting our Q1 2026 net interest margin to increase from the Q4 2025 net interest margin, in large part reflecting the Eastern acquisition and further steady increases throughout the year as we benefit from maturing relatively low-yielding fixed-rate commercial real estate loans and investments, along with higher-yielding time deposits. We are projecting a federal tax rate of 17%, which encompasses continued growth in net benefits from our low-income housing and historical tax credit activities, along with additional but lower levels of transferable energy tax credit investment. Expected quarterly results for non-interest income and non-interest expense are also provided for your reference.
We are forecasting our Q1 2026 net interest margin to increase from the Q4 2025 net interest margin, in large part reflecting the Eastern acquisition and further steady increases throughout the year as we benefit from maturing relatively low-yielding fixed-rate commercial real estate loans and investments, along with higher-yielding time deposits.
We are projecting a federal tax rate of 17%, which encompasses continued growth in net benefits from our low-income housing and historical tax credit activities, along with additional but lower levels of transferable energy tax credit investment. Expected quarterly results for non-interest income and non-interest expense are also provided for your reference.
Speaker #4: We are projecting a federal tax rate of 17%, which encompasses continued growth in net benefits from our low-income housing and historical tax credit activities, along with additional but lower levels of transferable energy tax credit investment.
Speaker #4: Expected quarterly results for non-interest income and non-interest expense are also provided for your reference. Non-interest expense projections reflect personnel investments that were made in the latter part of 2025 and expected during 2026 to support expansion in Southeast Michigan, as well as to support operational areas as we switch core and digital banking providers to enhance the durability, efficiency, and experience for customers and employees.
Operator: Noninterest expense projections reflect personnel investments that were made in the latter part of 2025 and expected during 2026 to support expansion in Southeast Michigan, as well as to support operational areas as we switch core and digital banking providers to enhance the durability, efficiency, and experience for customers and employees. The noninterest cost projections also include quarterly core deposit and tangible amortization of $0.9 million. In closing, we are very pleased with our operating results and financial condition during 2025 and believe we remain well-positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions. That concludes my prepared remarks, and I'll turn the call back over to Ray. Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call. Thank you. We will now begin the question-and-answer session.
Noninterest expense projections reflect personnel investments that were made in the latter part of 2025 and expected during 2026 to support expansion in Southeast Michigan, as well as to support operational areas as we switch core and digital banking providers to enhance the durability, efficiency, and experience for customers and employees. The noninterest cost projections also include quarterly core deposit and tangible amortization of $0.9 million. In closing, we are very pleased with our operating results and financial condition during 2025 and believe we remain well-positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions. That concludes my prepared remarks, and I'll turn the call back over to Ray.
Speaker #4: The non-interest cost projections also include quarterly core deposit and tangible amortization of $0.9 million. In closing, we are very pleased with our operating results and financial condition during 2025 and believe we remain well-positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions.
Speaker #4: That concludes my prepared remarks on long-term. Callback over to Ray.
Ray Reitsma: Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call.
Speaker #2: Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call.
Speaker #2: call. Thank
Operator: Thank you. We will now begin the question-and-answer session.
Speaker #3: We will now begin the question and answer session. To ask a question, please press *1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Operator: To ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star 1 again. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Tamayo with Raymond James. Please go ahead. Thank you. Good morning, Ray. Good morning, Chuck. Good morning, Daniel. Yeah, maybe starting on the margin guidance, Chuck. Just for clarification, I just want to make sure you do have the December rate cut and the guidance. And then curious if you could pull out kind of the purchase accounting accretion that's baked into the increase in the first quarter.
To ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star 1 again. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Tamayo with Raymond James. Please go ahead.
Speaker #3: To withdraw your question, press star 1 again. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Tamayo with Raymond James.
Speaker #3: Please go
Speaker #3: ahead. Thank you.
Daniel Tamayo: Thank you. Good morning, Ray. Good morning, Chuck. Good morning, Daniel. Yeah, maybe starting on the margin guidance, Chuck. Just for clarification, I just want to make sure you do have the December rate cut and the guidance. And then curious if you could pull out kind of the purchase accounting accretion that's baked into the increase in the first quarter.
Speaker #4: Good morning, Ray. Good morning, Chuck.
Speaker #5: Good morning, Daniel.
Speaker #4: Yeah, maybe starting on the margin guidance, Chuck. Just for clarification, I just want to make sure you do have the December rate cut in the guidance.
Speaker #4: And then curious if you could pull out kind of the purchase accounting accretion that's baked into the increase in the first quarter. You talked a lot about kind of stability, even though the forecast or the guidance is going up by about five basis points a quarter next year, ex the rate cuts.
Operator: You talked a lot about kind of stability, even though the forecast or the guidance is going up by about five basis points a quarter next year ex the rate cuts. But just curious, what that core margin forecast is looking like next quarter. Yeah, confirming that we use the rates as of year-end 2025 to put the projections together. The purchase accounting and the loan portfolio is about $125,000 net per quarter. I believe that's per quarter. I don't have the numbers, but there's also significant benefit, relatively speaking, from the securities portfolio, as there was a net unrealized loss in that portfolio at the time of consummation. So I would say when you look at Mercantile's legacy margin of low 3.4%, I would expect it at a relatively steady margin going into 2026.
You talked a lot about kind of stability, even though the forecast or the guidance is going up by about five basis points a quarter next year ex the rate cuts. But just curious, what that core margin forecast is looking like next quarter.
Speaker #4: But just curious, what that core margin forecast is looking like next?
Speaker #4: quarter. Yeah,
Chuck Christmas: Yeah, confirming that we use the rates as of year-end 2025 to put the projections together. The purchase accounting and the loan portfolio is about $125,000 net per quarter. I believe that's per quarter. I don't have the numbers, but there's also significant benefit, relatively speaking, from the securities portfolio, as there was a net unrealized loss in that portfolio at the time of consummation. So I would say when you look at Mercantile's legacy margin of low 3.4%, I would expect it at a relatively steady margin going into 2026.
Speaker #5: Confirming that we use the rates as of year-end '25 to put the projections together. The purchase accounting and the loan portfolio is about $125,000 net per quarter.
Speaker #5: I believe that's per quarter. There's also—I don't have the numbers—but there's also significant benefit, relatively speaking, from the securities portfolio, as there was a net unrealized loss in that portfolio at the time of consummation.
Speaker #5: So, I would say, when you look at Mercantile's legacy margin of a low 3.4%, I would expect it at a relatively steady margin going into 2026.
Speaker #5: So, kind of the difference between, say, the—excuse me—low, maybe touching the mid 3.4s, getting up to 3.55 to 3.65 in the first quarter, a lot of that's reflective of the Eastern.
Operator: So kind of the difference between, say, the low, excuse me, low maybe touching the mid-three-fours, getting up to 355 to 365 in the first quarter, a lot of that's reflective of the Eastern consummation. Okay. Thanks for that. It's helpful. And then I guess in terms of the assumptions baked into the margin guidance after that, the five basis points a quarter expansion, again, ex rate cuts, are you assuming any kind of change in non-interest-bearing concentration? I guess there's no cuts in that, but assuming we get a trend down in rates, you guys have been a little bit higher historically from a non-interest-bearing perspective. Are you assuming that in the guidance? No, the assumption with non-interest balances is what we typically do is we tie any change in that balance to the growth in commercial loans, which is in that 5% to 7%.
So kind of the difference between, say, the low, excuse me, low maybe touching the mid-three-fours, getting up to 355 to 365 in the first quarter, a lot of that's reflective of the Eastern consummation.
Speaker #5: consummation. Okay.
Daniel Tamayo: Okay. Thanks for that. It's helpful. And then I guess in terms of the assumptions baked into the margin guidance after that, the five basis points a quarter expansion, again, ex rate cuts, are you assuming any kind of change in non-interest-bearing concentration? I guess there's no cuts in that, but assuming we get a trend down in rates, you guys have been a little bit higher historically from a non-interest-bearing perspective. Are you assuming that in the guidance?
Speaker #4: Thanks for that. It's helpful. And then I guess in terms of the assumptions baked into the margin guidance after that, the five basis points a quarter expansion again, ex rate cuts, are you assuming any kind of change in non-interest-bearing concentration if we I guess there's no cuts in that, but assuming we get a trend down in rates, you guys have been a little bit higher historically from a non-interest-bearing perspective.
Speaker #4: Are you assuming that in the guidance?
Speaker #5: No, the assumption with non-interest balances is, what we typically do is we tie any change in that balance to the growth in commercial loans, which is in that 5% to 7% range.
Chuck Christmas: No, the assumption with non-interest balances is what we typically do is we tie any change in that balance to the growth in commercial loans, which is in that 5% to 7%.
Speaker #5: So, I think that's reflective of probably a 6% growth in non-interest balances.
Operator: So I think that's reflective of probably a 6% growth in non-interest balances. Got it. Okay. And then lastly, I guess just a clarification on the loan growth. You mentioned the 5% to 7% commercial. I guess with the offsets, potentially buybacks, and any kind of runoffs in other portfolios, the total number, you think closer to 5% next year for loan growth, or is 5% to 7% still the right way to think about it? No, I think 5% to 7% is the right way to show it. We're showing commercial growth of probably in the 6% to 7%, and then we're expecting residential mortgage portfolio to stay relatively steady. Okay. All right. Great. All right. Thanks for taking all my questions. Appreciate it. You're very welcome, Danny. Your next question comes from Brendan Nosal from Hovde Group. Please go ahead. Hey, good morning, folks.
So I think that's reflective of probably a 6% growth in non-interest balances.
Speaker #4: Got it. Okay. And then lastly, just, I guess, a clarification on the loan growth. You mentioned the 5% to 7% commercial. With the offsets and potentially buybacks, and any kind of runoffs in other portfolios, do you think the total number will be closer to 5% next year for loan growth, or is 5% to 7% still the right way to look at it?
Daniel Tamayo: Got it. Okay. And then lastly, I guess just a clarification on the loan growth. You mentioned the 5% to 7% commercial. I guess with the offsets, potentially buybacks, and any kind of runoffs in other portfolios, the total number, you think closer to 5% next year for loan growth, or is 5% to 7% still the right way to think about it?
Speaker #4: to think about it? No,
Chuck Christmas: No, I think 5% to 7% is the right way to show it. We're showing commercial growth of probably in the 6% to 7%, and then we're expecting residential mortgage portfolio to stay relatively steady.
Speaker #5: I think 5 to 7 is the right way to show it. We're showing commercial growth of, probably, it's probably in the 6 to 7%.
Speaker #5: And then we're expecting residential mortgage portfolio to stay relatively steady.
Daniel Tamayo: Okay. All right. Great. All right. Thanks for taking all my questions. Appreciate it.
Speaker #4: Okay. All right. Great. All right. Thanks for taking all my questions. Appreciate it.
Speaker #4: it. You're very welcome,
Chuck Christmas: You're very welcome, Danny.
Speaker #5: Danny. Your next
Operator: Your next question comes from Brendan Nosal from Hovde Group. Please go ahead.
Speaker #3: question comes from Brendan Nozel from Hogde Group. Please go ahead.
Brendan Nosal: Hey, good morning, folks.
Speaker #6: Hey, good morning, folks. Hope you're doing well. Just a little bit of a dig into kind of the margin and balance sheet impacts of Eastern, a little bit more particularly around their securities portfolio.
Operator: Hope you're doing well. Just wanted to dig into kind of the margin and balance sheet impacts of Eastern a little bit more, particularly around their securities portfolio. Just kind of curious, how much liquidity deployment of Eastern Michigan are you baking into that margin outlook, and kind of what does that imply for the overall balance of average earning assets as we move through the year? Yeah, I think we're not using all of the excess liquidity that we're gaining from the Eastern. We're definitely using part of that. I think when you look at our overall numbers, we ended the year including Eastern at about a 91% loan-to-deposit ratio. We are expecting that to go up during the year just based on our overall strategy and what we think is going to take place in the loan portfolio.
Hope you're doing well. Just wanted to dig into kind of the margin and balance sheet impacts of Eastern a little bit more, particularly around their securities portfolio. Just kind of curious, how much liquidity deployment of Eastern Michigan are you baking into that margin outlook, and kind of what does that imply for the overall balance of average earning assets as we move through the year?
Speaker #6: Just kind of curious, how much liquidity deployment of Eastern Michigan are you baking into that margin outlook, and kind of what does that imply for the overall balance of average earning assets as we move through the—
Speaker #6: Year? Yeah, I think we're not—
Chuck Christmas: Yeah, I think we're not using all of the excess liquidity that we're gaining from the Eastern. We're definitely using part of that. I think when you look at our overall numbers, we ended the year including Eastern at about a 91% loan-to-deposit ratio. We are expecting that to go up during the year just based on our overall strategy and what we think is going to take place in the loan portfolio.
Speaker #5: Using all of the excess liquidity that we're gaining from the Eastern, we're definitely using part of that. I think when you look at our overall numbers, we ended the year—including Eastern—at about a 91% loan-to-deposit ratio.
Speaker #5: We are expecting that to go up during the year, just based on our overall strategy and what we think is going to take place in the loan portfolio.
Speaker #5: So we're operating two separate banks, and the way that we're getting functionally, the way that we're getting that money is Eastern is depositing some of their excess liquidity into Mercantile Bank, certainly keeping more than sufficient funds at the Federal Reserve for their daily liquidity needs as well.
Operator: So we're operating two separate banks, and the way that we're getting functionally, the way that we're getting that money is Eastern is depositing some of their excess liquidity into Mercantile Bank, certainly keeping more than sufficient funds at the Federal Reserve for their daily liquidity needs as well. So we're definitely using part of it, but from a functionality standpoint, it's hard to use all of it until the banks do merge a little over a year from now. Yeah. Okay. Okay. That's helpful. One more from me, just changing topics here to Southeast Michigan. I think you mentioned in your prep remarks that there were some team adds in that market late in the year, which impacted expenses.
So we're operating two separate banks, and the way that we're getting functionally, the way that we're getting that money is Eastern is depositing some of their excess liquidity into Mercantile Bank, certainly keeping more than sufficient funds at the Federal Reserve for their daily liquidity needs as well. So we're definitely using part of it, but from a functionality standpoint, it's hard to use all of it until the banks do merge a little over a year from now.
Speaker #5: So we're definitely using part of it, but from a functionality standpoint, it's hard to use all of it. And so the banks did merge a little over a year ago.
Speaker #5: now. Yeah.
Brendan Nosal: Yeah. Okay. Okay. That's helpful. One more from me, just changing topics here to Southeast Michigan. I think you mentioned in your prep remarks that there were some team adds in that market late in the year, which impacted expenses.
Speaker #6: Okay, that's helpful. One more from me, just changing topics here to Southeast Michigan. I think you mentioned in your prep remarks that there were some team adds in that market late in the year, which impacted expenses. Just can you offer some color on what you've added to date down there, and then additional appetite for team adds or lift-outs, just given the M&A dislocation we're seeing?
Operator: Just, can you offer some color on what you've added to date down there, and then additional appetite for team adds or liftouts just given the M&A dislocation we're seeing in Detroit? Yeah. This is Ray. We've added a lending team down there that has gotten off to a very nice start, added to our backlog, and we continue to be in the market for more lending talent. Southeast Michigan is a vast area of opportunity, and adding one team does not come anywhere near covering it. So we'd be willing to continue to add the right sorts of people to our team to accomplish our objectives there. Okay. Fantastic. Thanks for taking my questions. Thanks, Brendan. Your next question comes from Nathan Race with Piper Sandler. Please go ahead. Hey, guys. Good morning. Thanks for taking the question. Morning, Nathan.
Just, can you offer some color on what you've added to date down there, and then additional appetite for team adds or liftouts just given the M&A dislocation we're seeing in Detroit?
Speaker #6: Detroit? Yeah.
Ray Reitsma: Yeah. This is Ray. We've added a lending team down there that has gotten off to a very nice start, added to our backlog, and we continue to be in the market for more lending talent. Southeast Michigan is a vast area of opportunity, and adding one team does not come anywhere near covering it. So we'd be willing to continue to add the right sorts of people to our team to accomplish our objectives there.
Speaker #5: This is Ray. We've added a lending team down there. That has gotten off to a very nice start, added to our backlog, and we continue to be in the market for more lending talent. Southeast Michigan is a vast area of opportunity.
Speaker #5: And adding one team does not come anywhere near covering it. So we'd be willing to continue to add the right sorts of people to our team to accomplish our objectives.
Speaker #5: there. Okay.
Brendan Nosal: Okay. Fantastic. Thanks for taking my questions.
Speaker #6: Fantastic. Thanks for taking my
Speaker #6: questions. Thanks,
Ray Reitsma: Thanks, Brendan.
Speaker #5: Brendan. Your next question comes
Operator: Your next question comes from Nathan Race with Piper Sandler. Please go ahead.
Speaker #3: from Nathan Race with Piper Sandler. Please go
Speaker #3: ahead. Hey, guys.
Nathan Race: Hey, guys. Good morning. Thanks for taking the question.
Speaker #7: Good morning. Thanks for taking the question.
Ray Reitsma: Morning, Nathan.
Speaker #8: Morning, Nathan.
Speaker #7: Chuck, on the expense guide, when I look at what Eastern's been running at relative to the Q4 level, it doesn't imply that there's cost savings coming through from Eastern relative to the target laid on the deck.
Operator: Chuck, on the expense guide, when I look at what Eastern's been running at relative to the Q4 level, it doesn't imply that there's cost savings coming through from Eastern relative to the target laid on the deck from last year. So just curious, some of those cost savings being reinvested in some of the hires that were just touched on, or can you just kind of unpack if there's any other reinvestments going on? Yeah. I think the plan for any cost savings from the Eastern acquisition on the personnel front, we're really going to be kind of later in 2027. By keeping the banks separate, we really needed everybody that was part of Eastern at the time of consummation to stay in very large regards. And so most of the cost savings or the cost savings associated with Eastern are more of a 2027 event.
Nathan Race: Chuck, on the expense guide, when I look at what Eastern's been running at relative to the Q4 level, it doesn't imply that there's cost savings coming through from Eastern relative to the target laid on the deck from last year. So just curious, some of those cost savings being reinvested in some of the hires that were just touched on, or can you just kind of unpack if there's any other reinvestments going on?
Speaker #7: From last year, so just curious is some of those cost savings being reinvested in some of the hires that were just touched on or can you just kind of unpack if there's any other reinvestments going on?
Chuck Christmas: Yeah. I think the plan for any cost savings from the Eastern acquisition on the personnel front, we're really going to be kind of later in 2027. By keeping the banks separate, we really needed everybody that was part of Eastern at the time of consummation to stay in very large regards. And so most of the cost savings or the cost savings associated with Eastern are more of a 2027 event.
Speaker #5: Yeah, I think the plan for any cost savings from the Eastern acquisition on the personnel front—we're really going to be kind of later in 2027 by keeping the bank separate.
Speaker #5: We really needed everybody that was part of Eastern at the time of consummation to stay, and very large regards. And so, most of the cost savings, or the cost savings associated with Eastern, are more of a 2027 event.
Speaker #5: And I think that kind of builds on what we see for 2026, kind of touching on with the last question and Ray's response in regards to expanding our presence in Southeast Michigan the people that we hired in the latter part of last year obviously continuing for a full year this year our desire to hire additional folks there that's a lot of investment, and we expect a solid loan growth in that market.
Operator: I think that kind of builds on what we see for 2026, kind of touching on what the last question and Ray's response in regards to expanding our presence in Southeast Michigan. The people that we hired in the latter part of last year, obviously continuing for a full year this year, our desire to hire additional folks there, that's a lot of investment, and we expect solid loan growth in that market, but clearly that will come down the road. So there'll be some investment impact there. We'll definitely look at adding some additional facilities in that market as we grow out that market. I don't really expect any cost from really any significant cost in 2026 associated with that part of the expansion. That'll be more of a 2027 impact.
I think that kind of builds on what we see for 2026, kind of touching on what the last question and Ray's response in regards to expanding our presence in Southeast Michigan. The people that we hired in the latter part of last year, obviously continuing for a full year this year, our desire to hire additional folks there, that's a lot of investment, and we expect solid loan growth in that market, but clearly that will come down the road.
Speaker #5: But clearly, that will come down the road. So there’ll be some investment impact. There will definitely be a look at adding some additional facilities in that market as we grow out that market.
So there'll be some investment impact there. We'll definitely look at adding some additional facilities in that market as we grow out that market. I don't really expect any cost from really any significant cost in 2026 associated with that part of the expansion. That'll be more of a 2027 impact.
Speaker #5: I don't really expect any significant costs in 2026 associated with that part of the expansion. That'll be more of a 2027 impact.
Speaker #5: But then tying that into which is also tied into the acquisition of Eastern is our switch on our core processor. To which we'll take place in February of 2027, and there'll be some pretty significant cost savings and just as importantly, some very, very nice efficiencies internally and a better and much higher durability than what we've had with our current setup and a better experience not only for our employees internally but also for our customers.
Operator: But then tying that into, which is also tied into the acquisition of Eastern, is our switch on our core processor, which will take place in February 2027. And there'll be some pretty significant cost savings and, just as importantly, some very, very nice efficiencies internally and a better and much higher durability than what we've had with our current setup and a better experience, not only for our employees internally, but also for our customers. So I don't want to call this the year of investment, but clearly what's being reflected in our thoughts for 2026 are those expectations. And I still expect a very solid year, but the investments will be there and are laid out in our numbers. Understood. That's really helpful.
But then tying that into, which is also tied into the acquisition of Eastern, is our switch on our core processor, which will take place in February 2027. And there'll be some pretty significant cost savings and, just as importantly, some very, very nice efficiencies internally and a better and much higher durability than what we've had with our current setup and a better experience, not only for our employees internally, but also for our customers.
Speaker #5: So, I don't want to call this the year of investment, but clearly, what's being reflected in our thoughts for 2026 are those expectations. We still expect a very solid year.
So I don't want to call this the year of investment, but clearly what's being reflected in our thoughts for 2026 are those expectations. And I still expect a very solid year, but the investments will be there and are laid out in our numbers.
Speaker #5: But the investments will be there and are laid out in our numbers.
Nathan Race: Understood. That's really helpful.
Speaker #7: Understood. That's really helpful. And then, Chuck, can you just update us with Eastern in the fold now and some of that excess liquidity deployment that you alluded to earlier?
Operator: And then, Chuck, can you just update us with Eastern in the fold now and some of that excess liquidity deployment that you alluded to earlier, what the sensitivity is around margin to any 25 cut that we would have on the short end? Yeah. We think that any changes in the interest rate environment, we think we're pretty well protected from those. As we say all the time, we want to be agnostic with changes in interest rates. We here firmly don't believe in anything, any part of our operation, but also interest rates is that hope is not a strategy.
And then, Chuck, can you just update us with Eastern in the fold now and some of that excess liquidity deployment that you alluded to earlier, what the sensitivity is around margin to any 25 cut that we would have on the short end?
Speaker #7: What's the sensitivity around margin to any 25 cut that we would have on the short end?
Chuck Christmas: Yeah. We think that any changes in the interest rate environment, we think we're pretty well protected from those. As we say all the time, we want to be agnostic with changes in interest rates. We here firmly don't believe in anything, any part of our operation, but also interest rates is that hope is not a strategy.
Speaker #5: Yeah, we think that any changes in the interest rate environment—we think we're pretty well protected from those. As we say all the time, we want to be agnostic with changes in interest rates.
Speaker #5: We here firmly don't believe in anything any part of our operation, but also interest rates is that hope is not a strategy. We want to be purposeful in what we do and make sure that we've got the fundamentals and the discipline to manage our balance sheet in a way that if rates go up, down, or don't change, any change in the margin will be, I won't call it nominal, but will be mitigated in large regard.
Operator: We want to be purposeful in what we do and make sure that we've got the fundamentals and the discipline to manage our balance sheet in a way that if rates go up, down, or don't change, any change in the margin will be, I won't call it nominal, but will be mitigated in large regard. Clearly, we want to work at strengthening the margin on an overall basis without getting away from the tenets of managing through interest rate risk. You see some of that with our projections for the margin for the rest of this year as we unwind some of the balance sheet from investments and loans that were made in a much lower interest rate environment. But on an overall basis, we think our margin is pretty well insulated from changes in interest rates. Gotcha.
We want to be purposeful in what we do and make sure that we've got the fundamentals and the discipline to manage our balance sheet in a way that if rates go up, down, or don't change, any change in the margin will be, I won't call it nominal, but will be mitigated in large regard. Clearly, we want to work at strengthening the margin on an overall basis without getting away from the tenets of managing through interest rate risk. You see some of that with our projections for the margin for the rest of this year as we unwind some of the balance sheet from investments and loans that were made in a much lower interest rate environment. But on an overall basis, we think our margin is pretty well insulated from changes in interest rates.
Speaker #5: Clearly, we want to work at strengthening the margin on an overall basis without getting away from the tenets of managing through interest rate risk.
Speaker #5: And you see some of that with our projections for the margin for the rest of this year. As we unwind some of the balance sheet from investments and loans that were made in a much lower interest rate environment, but on an overall basis, we think our margin is pretty well insulated from changes in interest
Speaker #5: rates.
Nathan Race: Gotcha.
Speaker #7: Gotcha.
Speaker #7: And on that last point, Chuck, and looking at slide 19, can you update us just in terms of the repricing of the two, in terms of how much of that reprices over the next four quarters or so?
Operator: On that last point, Chuck, and looking at slide 19, can you update us just in terms of the repricing of the two in terms of how much of that reprices over the next four quarters or so? Which part? I was looking for the page and I missed some of your questions. Sorry. The $2 billion in asset repricing on the bottom of slide 19, how much of that reprices over the next four quarters and by what magnitude? Yeah. I would say, yeah, I would say probably about 1/3 of it over the next year. But I think what's most important in that number is when you look at the existing yields on those assets this year and next year, there's a lot of repricing opportunities. We had the same last year, and that carries forward this year and into next year as well.
On that last point, Chuck, and looking at slide 19, can you update us just in terms of the repricing of the two in terms of how much of that reprices over the next four quarters or so? Which part?
Speaker #5: Which part? I was looking for the page, and I missed some of your questions.
Chuck Christmas: I was looking for the page and I missed some of your questions.
Nathan Race: Sorry. The $2 billion in asset repricing on the bottom of slide 19, how much of that reprices over the next four quarters and by what magnitude?
Speaker #7: Sorry. The $2 billion in asset repricing on the bottom of slide 19—how much of that reprices over the next four quarters, and by?
Speaker #5: Yeah. I would. Yeah. I would say yeah. I would say probably about a third of it over the next year, but I think what's most important in that number is when you look at the existing yields on those assets, this year and next year, there's a lot of repricing opportunities.
Chuck Christmas: Yeah. I would say, yeah, I would say probably about 1/3 of it over the next year. But I think what's most important in that number is when you look at the existing yields on those assets this year and next year, there's a lot of repricing opportunities. We had the same last year, and that carries forward this year and into next year as well.
Speaker #5: We had the same last year, and that carries forward this year. And into next year as well. And so the assets that are fixed rate that will mature in 2028 and beyond are more likened to current rates.
Speaker #5: We had the same last year, and that carries forward this year, and into next year as well. And so the assets that are fixed rate, that will mature in 2028 and beyond, are more likened to current rates.
Operator: The assets that are fixed rate that will mature in 2028 and beyond are more likened to current rates. Okay. Great. I appreciate all the color. Thanks, guys. You're very welcome. Your next question comes from Damon DelMonte with KBW. Please go ahead. Hey, good morning, guys. Hope you're doing well, and thanks for taking my questions. First question just on the loan growth outlook. Q4 was, on an organic basis, pretty modest. Just talk a little bit about what's giving you the optimism to kind of have that 5% to 7% for an annualized number in 2026. Is it more a function of the paydown slowing, or is it more that the appetite from customers is moving higher? Hey, Damon. This is Ray. The level of funding that we've had over that period of time that you referenced has been pretty solid.
The assets that are fixed rate that will mature in 2028 and beyond are more likened to current rates.
Nathan Race: Okay. Great. I appreciate all the color. Thanks, guys.
Speaker #7: Okay, great. I appreciate all the color. Thanks.
Speaker #7: guys. You're very
Chuck Christmas: You're very welcome.
Speaker #5: welcome.
Operator: Your next question comes from Damon DelMonte with KBW. Please go ahead.
Speaker #3: Your next question comes from Damon Del Monte with KBW. Please go ahead.
Speaker #1: Hey, good morning, guys. Hope you're doing well, and thanks for taking my questions. First question, just on the loan growth outlook. Fourth quarter was, I don't know, on an organic basis, was pretty modest.
Damon DelMonte: Hey, good morning, guys. Hope you're doing well, and thanks for taking my questions. First question just on the loan growth outlook. Q4 was, on an organic basis, pretty modest. Just talk a little bit about what's giving you the optimism to kind of have that 5% to 7% for an annualized number in 2026. Is it more a function of the paydown slowing, or is it more that the appetite from customers is moving higher?
Speaker #1: Just talk a little bit about what's giving you the optimism to kind of have that 5 to 7 percent for an annualized number in 2026.
Speaker #1: Is it more a function of the pay down slowing, or is it more that the appetite from customers is moving
Speaker #1: higher? Yeah.
Speaker #5: Damon, this is Ray. The level of funding that we've had over that period of time that you referenced has been pretty solid. And as you referenced, the payoffs were high in the fourth quarter.
Ray Reitsma: Hey, Damon. This is Ray. The level of funding that we've had over that period of time that you referenced has been pretty solid.
Operator: As you referenced, the payoffs were high in the fourth quarter. We expect that to continue to be true in the first quarter, but the backlog is at almost a historically high level. If we don't hit exactly in the first quarter what we project, we'll make that up in quarters after that. We feel really comfortable with our ability to be able to originate loans. The payoffs have been high for the last five quarters, actually, and we expect that to settle down later in the year. Overall, feel pretty comfortable that we'll be able to hit that number. Got it. Okay. That's helpful. Thank you. Then just update us with your thoughts on capital management.
As you referenced, the payoffs were high in the fourth quarter. We expect that to continue to be true in the first quarter, but the backlog is at almost a historically high level. If we don't hit exactly in the first quarter what we project, we'll make that up in quarters after that. We feel really comfortable with our ability to be able to originate loans. The payoffs have been high for the last five quarters, actually, and we expect that to settle down later in the year. Overall, feel pretty comfortable that we'll be able to hit that number.
Speaker #5: And we expect that to continue to be true in the first quarter, but the backlog is that almost a historically high level. So if we don't hit exactly in the first quarter what we project, we'll make that up in quarters after that.
Speaker #5: So we feel really comfortable with our ability to be able to originate loans. The payoffs have been high for the last five quarters, actually.
Speaker #5: And we expect that to settle down later in the year. And so, overall, feel pretty comfortable that we'll be able to hit that.
Speaker #5: number. Got it.
Damon DelMonte: Got it. Okay. That's helpful. Thank you. Then just update us with your thoughts on capital management.
Speaker #1: Okay. That's helpful. Thank you. And then just update us with your thoughts on capital management. I know there's a small amount of buybacks left for things like 6.8 million.
Operator: I know there's a small amount of buybacks left for things like $6.8 million, but just curious as to your thoughts with, now that the deal's closed, your capital levels remain very strong. Kind of just wondering what you're thinking about the buyback and any appetite as we go into 2026. Yeah. Damon, this is Chuck. I would say our appetite is, I would term it as, stronger appetite than we've had over, say, the last 12 to 18 months. Obviously, a lot going on with our company specifically. Everybody sees the markets are in, I'll call it turmoil, almost every morning, it seems. So we've been pretty cautious in how we manage capital. But I think as we put the Eastern, get that consummated, we see where we're at.
I know there's a small amount of buybacks left for things like $6.8 million, but just curious as to your thoughts with, now that the deal's closed, your capital levels remain very strong. Kind of just wondering what you're thinking about the buyback and any appetite as we go into 2026.
Speaker #1: But just curious as to your thoughts, now that the deal's closed—your capital levels remain very strong. I was wondering what you're thinking about the buyback and any appetite as we go into '26.
Chuck Christmas: Yeah. Damon, this is Chuck. I would say our appetite is, I would term it as, stronger appetite than we've had over, say, the last 12 to 18 months. Obviously, a lot going on with our company specifically. Everybody sees the markets are in, I'll call it turmoil, almost every morning, it seems. So we've been pretty cautious in how we manage capital. But I think as we put the Eastern, get that consummated, we see where we're at.
Speaker #5: Yeah, Damon, this is Chuck. I would say our appetite is—I would term it as—a stronger appetite than we've had over, say, the last 12 to 18 months.
Speaker #5: Obviously, a lot going on with our company specifically. Everybody sees the markets are in, I'll call it, turmoil almost every morning it seems. So we've been pretty cautious in how we manage capital.
Speaker #5: But I think, as we put the Eastern, get that consummated, we see where we're at. We see the comfort with our projections on the earnings side and the continue—which is very important—the continued expectation for strong asset quality.
Operator: We see the comfort with our projections on the earnings side and the continued, which is very important, the continued expectation for strong asset quality. We look at perhaps getting more into the buyback arena. Clearly, the stock price itself, and multiples of that will come into play. So I'm not making any promises, but I would say we have a bigger appetite going forward with buybacks than we've had more recently. Got it. Okay. And then just lastly, just to clarify on the Eastern securities portfolio, did you actually liquidate that and you're reinvesting that, or did you just mark it at the time of close and you carry it at a higher yield now? Yeah. It was the latter. It was marked to current market, and it's carried at a higher yield.
We see the comfort with our projections on the earnings side and the continued, which is very important, the continued expectation for strong asset quality. We look at perhaps getting more into the buyback arena. Clearly, the stock price itself, and multiples of that will come into play. So I'm not making any promises, but I would say we have a bigger appetite going forward with buybacks than we've had more recently.
Speaker #5: We are looking at perhaps getting more into the buyback arena. Clearly, the stock price itself, and multiples, will come into play. So I'm not making any promises, but I would say we have a bigger appetite going forward with buybacks than we've had more recently.
Damon DelMonte: Got it. Okay. And then just lastly, just to clarify on the Eastern securities portfolio, did you actually liquidate that and you're reinvesting that, or did you just mark it at the time of close and you carry it at a higher yield now?
Speaker #1: Got it. Okay. And then, just lastly, just to clarify on the Eastern securities portfolio—did you actually liquidate that and are you reinvesting that, or did you just mark it at the time of close and you carry it at a higher yield?
Speaker #1: now? Yeah.
Chuck Christmas: Yeah. It was the latter. It was marked to current market, and it's carried at a higher yield.
Speaker #5: It was the latter. It was marked to current market, and it's carried at a higher yield. And that duration on that portfolio was relatively short.
Operator: And that duration on that portfolio was relatively short, so provides us for some nice improvement on the margin, especially this year and into next year. Got it. Okay. Great. Thank you very much. You're welcome, Damon. A reminder, if you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Your next question comes from the line of John Rodis with Janney Montgomery Scott. Please go ahead. Hey, good morning. Morning, Dan. Just back to expenses, Chuck. Just to be clear, so your guidance on page 26, minimal cost savings for this year, and then I think you said, but that does include the CDI amortization of roughly 900,000 a quarter. Is that correct? That is correct. Yep. Okay.
And that duration on that portfolio was relatively short, so provides us for some nice improvement on the margin, especially this year and into next year.
Speaker #5: So, provides us for some nice improvement on the margin, especially this year and into—
Speaker #5: next year. Got it.
Damon DelMonte: Got it. Okay. Great. Thank you very much.
Speaker #1: Okay. Great. Thank you very
Speaker #1: much. You're welcome,
Speaker #1: much. You're welcome,
Chuck Christmas: You're welcome, Damon.
Speaker #5: Damon. A reminder, if you would like to ask a
Operator: A reminder, if you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Your next question comes from the line of John Rodis with Janney Montgomery Scott. Please go ahead.
Speaker #3: If you have a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Your next question comes from the line of John Rodas with Jani.
Speaker #3: Please go ahead.
John Rodis: Hey, good morning.
Speaker #7: Hey, good morning.
Chuck Christmas: Morning, Dan.
Speaker #5: Morning, John.
John Rodis: Just back to expenses, Chuck. Just to be clear, so your guidance on page 26, minimal cost savings for this year, and then I think you said, but that does include the CDI amortization of roughly 900,000 a quarter. Is that correct?
Speaker #7: Just back to expenses, Chuck, just to be clear—so your guidance on page 26: minimal cost saves for this year, and then I think you said, but that does include the CDI amortization of roughly $900,000 a quarter.
Speaker #7: Is that correct?
Chuck Christmas: That is correct. Yep.
Speaker #5: That is correct. Yep.
Speaker #7: Okay. And then I guess as we look to next year, to 2027, I know it's a long way away, but how should, I I mean, just big picture, how should we think of expenses?
John Rodis: Okay.
Operator: And then I guess as we look to next year, to 2027, I know it's a long way away, but how should, I mean, this big picture, how should we think of expenses? I mean, is it low to mid-single-digit growth and then add in some cost saves? And can you just talk about how much you would expect in cost savings next year, either on a percent or dollar basis? Yeah. I think the difficulty there is what we do with personnel investments, not only in Southeast Michigan, which Ray mentioned. Obviously, it's a very big market for us, but other markets as well. There are some cost savings coming from Eastern. They're not massive relative to the size and the needs that we have over there. We are expecting some meaningful reductions in the data processing area, especially with the new contract with our new provider.
And then I guess as we look to next year, to 2027, I know it's a long way away, but how should, I mean, this big picture, how should we think of expenses? I mean, is it low to mid-single-digit growth and then add in some cost saves? And can you just talk about how much you would expect in cost savings next year, either on a percent or dollar basis?
Speaker #7: I mean, is it low to mid-single-digit growth? And then add in some cost saves and can you just talk about how much you would expect in cost saves next year either on a percent or dollar basis?
Speaker #5: Yeah, I think the difficulty there is what we do with personnel investments, not only in Southeast Michigan—which Ray mentioned; obviously, it's a very big market for us—but other markets as well.
Chuck Christmas: Yeah. I think the difficulty there is what we do with personnel investments, not only in Southeast Michigan, which Ray mentioned. Obviously, it's a very big market for us, but other markets as well. There are some cost savings coming from Eastern. They're not massive relative to the size and the needs that we have over there. We are expecting some meaningful reductions in the data processing area, especially with the new contract with our new provider.
Speaker #5: There are some cost saves coming from Eastern. They're not massive, relative to the size and the needs that we have over there. We are expecting some meaningful reductions in the data processing area, especially with the new contract with our new provider.
Speaker #5: I would say we would look to put, we would like to save some money, but that might be a very nice avenue for us to continue to pay for, if you will, any expansion with personnel and/or facilities.
Operator: I would say we would look to put we would like to save some money, but that might be a very nice avenue for us to continue to pay for, if you will, any expansion with personnel and/or facilities, while being able to keep overhead relatively stable, but certainly show some solid growth on the balance sheet side, which would, of course, have a net result that would be a very positive impact on net income. So you're right. It's pretty far out there, but we know there's cost savings coming in 2027. We'll just see how that has to play out. But clearly, we've always believed that this company has a lot of opportunity to grow for lots of different reasons through its life. Going forward, the environment will continue to change.
I would say we would look to put we would like to save some money, but that might be a very nice avenue for us to continue to pay for, if you will, any expansion with personnel and/or facilities, while being able to keep overhead relatively stable, but certainly show some solid growth on the balance sheet side, which would, of course, have a net result that would be a very positive impact on net income.
Speaker #5: With being able to keep overhead relatively stable, but certainly show some solid growth on the balance sheet side, which would, of course, have the net result of a very positive impact on net income.
Speaker #5: So, you’re right—it’s pretty far out there. But we know there are cost saves coming in 2027. We’ll just see how that has to play out.
So you're right. It's pretty far out there, but we know there's cost savings coming in 2027. We'll just see how that has to play out. But clearly, we've always believed that this company has a lot of opportunity to grow for lots of different reasons through its life. Going forward, the environment will continue to change.
Speaker #5: But clearly, we've always believed that this company has a lot of opportunity to grow. For lots of different reasons through its life and, going forward, the environment will continue to change.
Speaker #5: But we want to make sure that we're taking advantage of the opportunities that we have. And it maybe gets a little bit lumpy from time to time as we make those investments and as we get those benefits in future periods.
Operator: But we want to make sure that we're taking advantage of the opportunities that we have, and it maybe gets a little bit lumpy from time to time as we make those investments and as we get those benefits in future periods. But there's a lot of opportunity. We're in solid markets. We have some great opportunities in Southeast Michigan and certainly feel very positive about what the future holds. Okay. Okay. Thanks for your thoughts, Chuck. I appreciate it. You're welcome. This concludes our question and answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks. Thank you for your participation in today's call and for your interest in Mercantile Bank. That concludes today's call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. This event has now concluded.
But we want to make sure that we're taking advantage of the opportunities that we have, and it maybe gets a little bit lumpy from time to time as we make those investments and as we get those benefits in future periods. But there's a lot of opportunity. We're in solid markets. We have some great opportunities in Southeast Michigan and certainly feel very positive about what the future holds.
Speaker #5: But there's a lot of opportunity. We're in solid markets. We have some great opportunities in the Southeast of Michigan and certainly feel very positive about what the future holds.
John Rodis: Okay. Okay. Thanks for your thoughts, Chuck. I appreciate it.
Speaker #7: Okay, okay. Thanks, thanks for your thoughts, Chuck. I appreciate it.
Speaker #7: it. You're
Chuck Christmas: You're welcome.
Speaker #5: welcome. This
Operator: This concludes our question and answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks.
Speaker #3: That concludes our question and answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks.
Ray Reitsma: Thank you for your participation in today's call and for your interest in Mercantile Bank. That concludes today's call.
Speaker #5: Thank you for your participation in today's call and for your interest in Mercantile Bank. That concludes today's
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. This event has now concluded.
Speaker #3: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for joining Mercantile Bank Corporation Q4 2025 earnings call. The line will disconnect automatically.
[Unknown Speaker]: Thank you for joining Mercantile Bank Corporation Q4 2025 earnings call. The line will disconnect automatically.
