Mercantile earnings increased modestly in the third quarter of 2026 as lower funding costs helped widen its net interest margin. The Michigan-based bank reported net income of $24.1 million on October 20, compared with $23.8 million a year earlier. Diluted earnings per share nevertheless fell to $1.39 from $1.46, while higher expenses limited the benefit of strong revenue growth.
Key Takeaways
- Net interest margin widened to 3.73% from 3.49% a year earlier as funding costs declined.
- Revenue increased 17.3%, but operating expenses and income tax expense also rose.
- Local deposit growth lowered the loan-to-deposit ratio, while elevated borrower repayments restrained loan expansion.
Table of Contents
- Mercantile earnings show a split between profit and EPS
- Lower funding costs support interest income
- Expense growth absorbs much of the revenue gain
- Deposit growth improves the funding position
- Conclusion
Mercantile earnings show a split between profit and EPS
The company’s third-quarter 2026 results announcement showed adjusted net income of $24.5 million, or $1.42 per diluted share, compared with $24.3 million, or $1.50 per share, a year earlier.
Those non-GAAP figures exclude acquisition and banking-system conversion costs and other one-time items. Both reported and adjusted net income increased slightly, but neither translated into higher quarterly per-share earnings.
The nine-month comparison was stronger. Net income reached $72.7 million, or $4.21 per diluted share, versus $65.9 million, or $4.06 per share, in the first nine months of 2025.
| Item | Details |
|---|---|
| Total assets | $7.16 billion at September 30, 2026 |
| Return on average assets | 1.4% for Q3 2026 |
| Return on average equity | 12.6% for Q3 2026 |
| Tangible book value per common share | $37.81 at September 30, 2026 |
| Wholesale funding | $325 million, approximately 5% of total funds, at September 30, 2026 |
Lower funding costs support interest income
Net interest income increased 17.1% to $60.9 million, reflecting earning-asset growth and a 24-basis-point improvement in net interest margin. Eastern Michigan Bank contributed $5.8 million of the quarter’s net interest income.
The cost of funds declined to 1.79% from 2.25%. Mercantile cited lower rates on money market accounts and time deposits, a larger share of low-cost deposits and reduced use of brokered funding.
Funding became cheaper even as the yield on average earning assets fell to 5.52% from 5.74%. The larger decline in funding costs helped improve the bank’s lending and investment spread.
Expense growth absorbs much of the revenue gain
Total revenue rose to $73.2 million from $62.4 million. Noninterest income increased 18.4% to $12.3 million, supported by treasury management fees, interest rate swap income and mortgage banking income.
Noninterest expense climbed to $43.6 million from $34.8 million. Eastern Michigan Bank accounted for $4.1 million of current-quarter expenses, while other increases included compensation, hiring for system conversion and Southeast Michigan expansion, and cost inflation.
Income tax expense also increased, reaching $4.9 million from $3.7 million. The effective tax rate rose to 16.8% from 13.4%, partly reflecting lower net benefits from transferable energy tax credits.
Deposit growth improves the funding position
Total deposits reached $5.61 billion at September 30, up from $5.28 billion at year-end 2025. Local deposits increased $438 million during the first nine months, while brokered deposits declined $110 million.
The loan-to-deposit ratio fell to 88.3%, from 92.8% at June 30 and 91.2% at year-end. Total loans grew $37.4 million during the quarter despite $147 million of payoffs and partial paydowns on certain larger commercial relationships.
Credit indicators remained subdued: nonperforming assets totaled $9.8 million, or 0.1% of total assets, and the bank recorded net loan recoveries. Credit-loss provisions nevertheless increased to $0.7 million from $0.2 million a year earlier.
Conclusion
Mercantile’s wider margin and stronger deposit base supported revenue growth, but higher costs left quarterly profit only slightly ahead of a year earlier. The next scheduled operational milestone is its core and digital banking system conversion, expected in the first quarter of 2027.
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