Mercantile Bank Corporation Announces Robust Third Quarter 2023 Results.

GRAND RAPIDS, Mich: Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $20.9 million, or $1.30 per diluted share, for the third quarter of 2023, compared with net income of $16.0 million, or $1.01 per diluted share, for the respective prior-year period. Net income during the first nine months of 2023 totaled $62.2 million, or $3.89 per diluted share, compared with net income of $39.3 million, or $2.48 per diluted share, during the first nine months of 2022.

"We are very pleased with our third quarter financial results, especially when considering the challenging operating conditions and uncertain economic environment that we continued to face," said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. "Our strong operating results were propelled by enhanced net interest income, which was up nearly 16 percent in the third quarter of 2023 compared to the respective prior-year period primarily due to a higher net interest margin and growth in the commercial loan and residential mortgage loan portfolios. As evidenced by the ongoing loan portfolio expansion and strength in asset quality metrics, we remain committed to employing sound underwriting standards to meet the credit needs of our existing customers and foster loan relationships with new clients. We believe our strong capital position will allow us to endure any issues stemming from shifting economic conditions."

Third quarter highlights include:

Significant increase in net interest income reflecting a higher net interest margin and loan growth

Noteworthy increases in several key fee income categories

Ongoing growth in commercial loan and residential mortgage loan portfolios

Continuing strength in commercial loan pipeline

Sustained low levels of nonperforming assets, past due loans, and loan charge-offs

Strong capital position

Operating Results

Total revenue, consisting of net interest income and noninterest income, was $58.2 million during the third quarter of 2023, up $8.6 million, or 17.2 percent, from $49.6 million during the prior-year third quarter. Net interest income during the third quarter of 2023 was $49.0 million, up $6.6 million, or 15.5 percent, from $42.4 million during the respective 2022 period, primarily due to increased yields on earning assets and loan growth. Noninterest income totaled $9.2 million during the third quarter of 2023, compared to $7.3 million during the third quarter of 2022. Excluding a gain on the sale of other real estate owned, noninterest income increased $1.6 million, or nearly 22 percent, in the third quarter of 2023 compared with the prior-year third quarter mainly due to higher levels of mortgage banking income, interest rate swap income, bank owned life insurance income, credit and debit card income, and payroll processing fees.

The net interest margin was 3.98 percent in the third quarter of 2023, up from 3.56 percent in the prior-year third quarter. The yield on average earning assets was 5.78 percent during the current-year third quarter, an increase from 4.04 percent during the respective 2022 period. The higher yield on average earning assets primarily resulted from an increased yield on loans. The yield on loans was 6.37 percent during the third quarter of 2023, up from 4.56 percent during the third quarter of 2022 mainly due to higher interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee ("FOMC") substantially raising the targeted federal funds rate in an effort to reduce elevated inflation levels. The FOMC increased the targeted federal funds rate by 375 basis points during the period of July 2022 through July 2023, during which time average variable-rate commercial loans represented approximately 65 percent of average total commercial loans.

The cost of funds was 1.80 percent in the third quarter of 2023, up from 0.48 percent in the third quarter of 2022 primarily due to higher costs of deposits and borrowed funds, reflecting the impact of the...