Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation 2025 third quarter earnings results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Nicole Clatter, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us today. Today, we will cover the company's financial results for the third quarter of 2025. The team members joining me this morning include Ray Reismuth, 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 a 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 filing. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin.

Ray? Thanks, Nicole. Our results for the third quarter of 2025 build on the theme of commercial expertise generating a strong return profile. We continue to demonstrate top quartile ROA performance relative to our peers built upon the following traits. Trait number one, a strong and stable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 96 basis points, while our margin has dropped by a mere two basis points to 3.5%. This illustrates effective execution of our strategic objective to maintain a steady margin via match funding of 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... the low levels typical of our company at 16 basis points of total loans. Non-performing loans to loans over the last five years plus the year-to-date period averaged 13 basis points. The allowance for credit losses stands at 1.28% of total loans as of September 30, 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 and loan administration. Trade number three, improved on balance sheet liquidity and loan to deposit ratio. Our loan to deposit ratio stands at 96% compared to 102% on September 30, 2024 and 110% on December 31, 2023. Our deposit mix includes 25% non-interest bearing deposits and 20% lower cost deposits, which have contributed to the stability of our net interest margin. Our previously announced planned acquisition of Eastern Michigan Financial Corporation will contribute positively to each of these measures. Trait number four, strong deposit and loan compounded annual growth rates. For the third quarter of 2025, annualized deposit growth was 9%. Our recent focus on deposit growth is not new to our bank. In fact, the last six year-end periods demonstrate a deposit compounded annual growth rate of 11.8%. Over the same time period, total loans demonstrate a compounded annual growth rate of 10%. From a third quarter 2025 perspective, loans contracted and annualized 7% as loan pay downs anticipated in the second half of the year were concentrated in the third quarter. We believe this contraction is a one-quarter anomaly as the September 30, 2025 commitments to make loans totals $307 million, an all-time high which exceeds the average of the prior four quarters by 32%. We expect that loan growth for 2025 in total 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 an 18% increase in service charges on accounts during the first nine months of 2025. Our payroll service offerings continue to report very consistent growth, and the current year nine-month growth of 15% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of saleable loans, contributing to 12% growth in mortgage banking income during the first nine months compared to the respective 2024 period. Trait number six, stability and 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 in all other commercial loan segments and proven concentrations in categories such as office, retail, assisted living, hotel, and automotive exposures. In sum, these traits have allowed us to report a 20% quarter-over-quarter earnings per share growth, a 1.5% return on average assets, and a 14.7% return on average equity for the third quarter of 2025, and a 13% increase in tangible book value per share over the last four quarters. Additionally, our five-year tangible book value per share compounded annual growth rate of 8.4% and five-year earnings per share compounded annual growth rate of 10.4%, each places in the top two of our proxy peer group. We remain excited about the upcoming combination with Eastern Michigan Financial Corporation, which has financially attractive traits, including double-digit earnings accretion mid-single-digit tangible book value dilution, and a mid-three-year earn-back period. That concludes my remarks. I'll now turn the call over to Chuck.

Thanks, Ray. This morning, we announced net income of $23.8 million, or $1.46 per diluted share, for the third quarter of 2025, compared with net income of $19.6 million, or $1.22 per diluted share, for the third quarter of 2024. Net income during the first nine months of 2025 totaled $65.9 million, or $4.06 per diluted share, compared with $60 million, or $3.72 per diluted share, for the respective prior year period. Growth in net income during both timeframes 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. Interest income on loans was similar during the third quarter and first nine months of 2025 compared to the prior year periods, reflecting loan growth that was mitigated by a lower yield on loans. Average loans totaled $4.6 billion during the third quarter of 2025 compared to $4.47 billion during the third quarter of 2024 an increase of $201 million, which equates to a growth rate of over 4%. Our yield on loans during the third quarter of 2025 was 31 basis points lower than the third quarter of 2024, largely reflecting the aggregate 100 basis point decline in the federal funds rate during the last four months of 2024 and the additional 25 basis point decrease during late third quarter 2025. Interest income on securities increased during the third quarter and first nine months of 2025 compared to the prior year periods, reflecting growth in the securities portfolio and the reinvestment of lower yielding investments in a higher interest rate environment. Interest income on interest earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, increased during the third quarter and first nine months of 2025 compared to the respective prior year periods, reflecting higher average balances that were partially offset by lower yields. In total, interest income was $2.2 million and $8.9 million higher during the third quarter and first nine months of 2025 compared to the respective prior year periods. Interest expense on deposits decreased during the third 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 that more than offset growth in average deposits. Average deposits totaled $4.83 billion during the third quarter of 2025 compared to $4.34 billion during the third quarter of 2024 an increase of $489 million, which equates to a growth rate of over 11%. The cost of deposits was down 32 basis points during the third quarter of 2025 compared to the third quarter of 2024. Conversely, interest expense on deposits increased during the first nine months of 2025 compared to the prior period. Although the cost of deposits declined 18 basis points, Growth in average deposits between the two periods of $544 million, equating to a growth rate of over 13%, resulted in a net increase in interest expense on deposits. Interest expense on Federal Home Loan Bank of Indianapolis advances declined during the third quarter and first nine months of 2025 compared to the prior year periods, largely reflecting a lower average balance. And interest expense on other borrowed funds declined during the third quarter and first nine months of 2025 compared to the prior year periods, largely reflecting lower rates in our trust-referred securities due to the lower interest rate environment. In total, interest expense was $1.5 million lower during the third quarter of 2025 and $1.6 million higher during the first month of 2025 compared to the respective prior year periods. Net interest income increased $3.7 million and $7.3 million during the third quarter and first nine months of 2025 compared to the respective prior year periods. Impacting our net interest margin over the last past couple of years has been our strategic initiative to lower the loan or 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 the higher-costing money market and time deposit products, while the purchase securities provide a lower yield than loan products. But despite that strategic initiative and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been relatively steady over the past five quarters, ranging from a high of 3.52% to a low of 3.41%, averaging 3.48%. And our net interest margin forecast for the fourth quarter of 2025 reflects similar results. 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. Basic funds management practices such as match funding combined with scheduled maturities of lower fixed rate commercial loans and securities and higher rate time deposits along with scheduled rate adjustments on residential mortgage loans, should provide for a relatively stable net interest margin in future periods. Our net interest margin declined two basis points during the third quarter of 2025 compared to the third quarter of 2024. Our yield on earning assets declined 33 basis points during that time period, largely reflecting the aggregate 100 basis point decline in the Fed funds rate, during the last four months of 2024, and the additional 25 basis point decrease during late third quarter 2025, while our cost of funds declined 31 basis points, primarily reflecting lower rates paid on money markets and time deposits, which more than offset an increased mix of higher costing money market and time deposits. While average loans increased $201 million, or almost 5%, for the third quarter of 2024 to the third quarter of 2025, average deposits grew $489 million, or over 11% during the same time period, providing a net surplus of funds totaling $288 million. We used that net surplus of funds to grow our average securities portfolio by $163 million, and reduce our average Federal Home Loan Bank of Indianapolis advance portfolio by $64 million. In addition, our average balance at the Federal Reserve Bank of Chicago increased $95 million. We recorded a provision expense of $0.2 million and $3.9 million during the third quarter and first nine months of 2025, respectively, compared to $1.1 million and $5.9 million during the respective 2024 periods. The reserve balance increased $0.8 million during the third quarter of 2025, reflecting the $0.2 million provision expense and net loan recoveries of $0.6 million, with the reserve balance increasing $4.7 million during the first nine months of 2025, reflecting the $3.9 million provision expense and net loan recoveries of $0.8 million. The reserve balance equals 1.28% of total loans as of September 30, 2025, compared to 1.18% at year-end 2024. The third quarter provision expense was primarily comprised of a $2.9 million increase in specific reserve allocations and a $0.9 million net increase in qualitative factor allocations, which were largely mitigated by a $2.3 million reduction associated with higher residential mortgage and consumer loan prepayments that shortened the average lives of those portfolio segments and a $0.9 million decline from a reduction in total loans. Non-interest expenses were $2.4 million and $7.3 million higher during the third quarter and first nine months of 2025 compared to the respective prior year time periods. The increase largely reflects 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 volumes and software support costs, along with introduction of new cash management products and services. Despite increased pre-tax income during the third quarter and the first nine months of 2025, compared to the respective prior year periods, we were able to reduce our federal income tax expense by $1.3 million and $3.6 million, respectively. The reductions largely reflect the acquisition of transferable energy tax credits during the second and third quarters of 2025, providing for reductions in federal income tax expense of $1 million and $2.6 million during the third quarter and first nine months of 2025, respectively. Our federal income tax expense was further reduced by benefits associated with our low-income housing and historical tax credit activities, which totaled $0.7 million and $1.2 million during the third quarter and first nine months of 2025, respectively. The recording of these tax benefits resulted in third quarter and year-to-date 2025 effective tax rates of 13% and 15%, respectively. We are scheduled to close on another transferable energy tax credit by the end of October, which will reduce our federal income tax expense by about $950,000. Additional acquisitions of transferable energy 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. Our bank's total risk-based capital ratio was 14.3% as of September 30, 2025, about $236 million above the minimum threshold to be categorized as well-capitalized. We did not repurchase shares during the first nine months of 2025. We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow up $4.27, or almost 13%, during the first nine months of 2025. The improvement primarily reflects retained earnings growth of $48 million and a decline of $21 million in after-tax unrealized losses on securities. On slide 25 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for the remainder of 2025 with the caveat that market conditions remain volatile, making forecasting difficult. This forecast is predicated on a 25 basis point reduction to the Fed funds rate on October 29th. We are projecting loan growth in a range of 5% to 7% annualized during the fourth quarter. Despite the expected federal funds rate reduction, we are forecasting our net interest margin to remain relatively steady and within the range over the past five quarters. And we are projecting a federal tax rate of 15% for the quarter. Expected quarterly results in non-interest income and non-interest expense are also provided for your reference, noting that non-interest expense projections include the assumption that the acquisition of Eastern Michigan will be concluded by the end of this year. In closing, we are very pleased with our operating results and financial condition during the first nine months of 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. I'll now 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.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then 2. Our first question comes from Brendan Nozzle with Hooved Group. Please go ahead.

Hey, good morning, guys. Hope you're doing well. Morning. Maybe just starting off here on credit quality. I think you had net recoveries in seven of the past eight quarters. I'm just kind of curious, where are you finding recoveries at this point in a cycle? And just given how clean the book has been for the past couple of years, what do you think of as a normalized charge-off ratio, given your credit box and portfolio mix at this point?

Well, as it relates to where they come from, we've taken a pretty conservative stance over our company's history on what we charge off, and we're fairly relentless about recovering those once we do charge them off. So some of those go back a ways, and we just kind of never say die as it relates to a charge off. As it relates to a normalized level, I'll let Chuck answer that. Yeah.

Yes, I'll make one comment specifically on third quarter. Part of that recovery was on a loan that we charged off in the fourth quarter of last year, and that credit remains an active recovery status. We typically budget between five and ten basis points of net charge-offs. I think from a historical perspective, obviously excluding the Great Recession, that makes sense to us.

Okay. Okay. That's helpful color. Um, maybe turning to the net interest in margin, um, just kind of thinking, you know, conceptually about the margin, um, a little bit beyond the fourth quarter. Um, you know, I guess on the one hand, um, you know, rate cuts are maybe a modest headwind for the margin, but you're going to be putting all that liquidity from Eastern Michigan, uh, to work across the next year. So how did those things bounce out kind of in the direction that the margin takes over the next couple of quarters?

Yeah, I think you're spot on. Obviously, the acquisition will be beneficial to that interest margin. That was clearly something that we saw and look forward to benefiting from. As I mentioned in my prepared remarks, we do have the lower rate loans and securities that will continue to reprice interest. you know, quite a bit, even if the rates do, market rates continue to come down, there's still quite a bit of significant opportunity there to gain some interest income. And, you know, we do have time deposits that are at higher rates than current market even today. So those will be, you know, everything we just talked about will be, you know, very strong tailwinds. You know, the one headwind is the reduction of the Fed funds rate And, you know, part of the answer to your question is just how aggressive the Fed gets. But we believe on an overall basis that regardless of what the Fed does, our net interest margin will remain relatively steady because of all those things.

Okay. And just as a follow-up, on that lower rate loan and security repricing, can you just size up that opportunity over the next 12 months? How much back book low rate stuff do you have coming due?

Yeah, I would say probably, we're going to go by memory here. So we have about $90 million in securities that have an average yield of about 1%. We're getting about 375 to maybe 4% currently on that. We have about $160 million in commercial real estate loans that will mature next year. And those, I think, are at an average rate of about 4.5%. And then we also have some portfolio adjustable rate mortgage loans. I don't know off the top of my head, but there's some that are coming up for initial repricing, and there's definitely some solid tailwind in those as well.

Okay. All right. Well, thank you all for taking my questions. I appreciate it. You bet.

And the next question comes from Daniel Tomeo with Raymond James. Please go ahead.

Thank you. Good morning, guys. I guess first on just on the paydowns, you know, you talked a lot about it in the prepared marks. So did I hear this right? That it was, it was basically the paydowns that you were expecting for the back half of the year you recognized in the third quarter. And if that's the case, you know, how should we think about that five to 7% loan growth? guidance, I mean, that's about where, you know, it's basically where you guys have been historically. Is there a chance that's, you know, elevated in the fourth quarter and then back to normal next year? Or what's the thinking around that number and how the paydowns play into that?

Yeah, Dan, this is Chuck, and I'll take a first stab at it. And, you know, one of the things about paydowns is you know some of them are coming. You know, generally we get the paydowns from the sale of the assets, the underlying assets. or the refinance of the loan to the secondary market, and that's especially true for multifamily. And you kind of get an idea that they're coming, but clearly we don't have any control over that, so the timing becomes, you know, relatively suspect. But, you know, sitting towards the end of the second quarter, the ones that we got in the third quarter, we knew they were coming. It was just a matter of at what month and in which quarter that was going to take place. You know, we were always getting some level of paydowns. From quarter to quarter because of the activity of our borrowers, and that's not going to change I think we just kind of you know like our commercial loan funding sometimes quarter to quarter it gets a little bit Bigger it's a little more lumpy as you go quarter to quarter And so the same thing happens with funding the same thing happens with payoffs as well As Ray mentioned we got a very very strong pipeline right now the big question in regards to the fourth quarter is when does all of that close and Um, you know, we definitely have some expected closings here in the first half of the quarter. Uh, but we also have some, um, fundings that are expected to close, you know, towards year end. And, you know, whether that happens in December or whether that happens in January, that's just difficult to tell. Um, so that's just relative to our lumpiness. And sometimes we get quarter to quarters that are a little bit more abnormally lumpy. If I can say that, um, I think in regards to the future, we're looking at continued mid-single digits of loan growth. We tried to peg that. I tried to peg that at 5% to 7% for the fourth quarter, knowing what I was just talking about, that could be a little bit off. If it's going to be off, it's probably more likely that the loan growth will be higher than that, with a lot of that coming right at the quarter end. But as we start to prepare our budget, we really haven't started doing a lot with that yet. again, that the higher end of maybe five to seven, maybe six to 8% is kind of what we're thinking about for next year.

Okay. Very helpful. Thank you. And then I guess, you know, taking a look at the expenses, they're a little bit higher in the, in the third quarter than I was looking for. And then the guidance takes a step up from that. Just curious if, If there's anything unexpected or unusual in the expense base, you know, or if that's a relatively clean number, putting aside the acquisition to look at going into the fourth quarter. I mean, 2026, sorry.

Yeah, Danny, I would say the third quarter, you know, except for the ones that we highlighted that the, you know, the acquisition costs and the contribution to our foundation is I think there's definitely, I think those are good run rates if you make those two adjustments. But I will say in the guidance that we gave for the fourth quarter, that includes about a million dollars in acquisition costs. And that makes the assumption that the acquisition is closed by the end of this quarter.

Okay, so that includes a million of acquisition. All right, that's helpful. And that brings things back to kind of where we thought they were. Okay, I appreciate it. So there's nothing on the tax line that is factoring in with the credits that flows through expenses now, right? That doesn't impact that?

Yeah, the tax things that we talk about are just the impact on the federal income tax line item. They don't impact overhead.

Okay, great. Okay, I'll step back. Thanks, guys. Thank you.

And the next question comes from Damon Del Monte with KBW. Please go ahead.

Hey, good morning, guys. Hope you're all doing well. Just to follow up on the expense question there, can you just remind us, Chuck, kind of the timing or the cadence of when you expect to realize the cost saves as far as, like, you know, systems conversion and kind of where you can really see some of that leverage from the cost savings from the EFIN deal?

Yeah, so there's obviously two big things going on there, and, you know, there'll be some – There will be some cost saves next year relative to the Eastern acquisition, although, quite frankly, most of the cost saves are going to start taking place in 2027. We're planning on the core merger. The core conversion, I should say, will be in February of 2027. And until that time, we'll actually be a two-bank holding company with Mercantile and Eastern both continuing to run as they are today. So from a day-to-day operations standpoint, the cost saves are really a 2027 event. Now, with the merger itself of the parent companies, there'll definitely be some cost saves, some overhead cost saves there. But as we talked about with the announcement is that the cost saves are going to be a little bit longer than typical because of the delay in the merging of the two banks together themselves. And then, like I said, the core conversion is set for February of 2027. There will be some costs that we'll expense in 2026 relative to the preparation for that. We'll definitely highlight that in the income statement as it comes through. But once the conversion takes place, there'll be some pretty significant savings as we go forward from that. There's going to be a little bit of a missed timing there as we prepare for the core conversion already started, but definitely through next year. There'll be some upfront costs, but the savings thereafter will be significantly higher than those upfront costs.

Got it. Great. Appreciate that color. And with regards to the tax rate, how do you think about 26 if you don't have any more purchased transferable tax credits? Or do you expect there to be some in 26 that would impact that number?

Yeah. So, Damon, as I mentioned, we're just starting to get into the tax rates. I think if you said, you know, you're not going to do any energy credits, that's probably going to be somewhere around an 18%, maybe 17.5% somewhere in there. Don't quote me on that. But we are planning on doing some additional energy tax credits. And, you know, right now we're closing one, I think, later this week or next week. They're still available. Obviously, there's a lot of due diligence that needs to go through that process. And we do have capacity to do them next year. We are planning on doing that next year. We'll, we'll even budget for that. If we're able to maximize what we, what we can do from a tax perspective, our tax rate will probably be closer to 16%.

Got it. Okay, great. And then just lastly, obviously credit trends are pretty positive here, but as we think about the provision and growth kind of coming back online here in the fourth quarter, you know, You know, do we kind of use the first and second quarter as a good barometer for what we can look for for a quarterly provision in the fourth quarter?

Yeah, I think that's pretty good. You know, obviously the credit quality remains very strong. And, you know, we're always chasing some credits, even good times and bad times. But we continue to do that and, you know, establish specific reserves when we think that's appropriate to do. The prepayment speeds on the mortgage loans, which obviously had an impact in the third quarter, that's an annual event for us for the most part. We look at it each quarter, but in general, we look at it comprehensively once a year. If rates change dramatically and we see some significant changes in prepayments from quarter to quarter, we'll definitely address it. But I would say on an overall basis, taking into account our asset quality and our growth expectations, I think your comment is accurate.

Great. Okay. That's all that I had. Thank you very much.

Yep.

And the next question comes from Nathan Race with Piper Sandler.

Please go ahead. Hey, guys. Good morning. Thank you for taking the questions. Going back to the margin discussion, you know, curious, you know, how aggressive you guys can be in terms of, you know, reducing deposit rates on the, you know, 3.8 Billion in funding that you call out on slide 18. And if you could mention, Chuck, maybe what the spot rate of deposits were at the end of the quarter relative to the 220 all in cost in 3Q.

Yeah, a lot of numbers there. I think one of the things that we have done, and we've done this as part of bringing in money market accounts, which obviously we've seen a lot of growth in, is, you know, we've told the depositors that, you know, we... We change rates in that product relative to the change in rates in the Fed funds rate. So there's been no surprises there. As a matter of fact, some of those deposit accounts actually legally are tied to the Fed funds rate, but that's how we manage all of the products within the money market account. So we would continue to either increase them basis point for basis point or reduce them basis point for basis point, at least into the near future. based on changes in the Fed funds rate. So that's immediate, so it matches up well with the changes that would happen on our commercial loans relative to any changes that take place with the Fed funds rate. So some solid matching there. Time deposits, a vast majority of our time deposits mature within one year. And I would say based on rates today, that's about 50 basis points. on average of a reduction in time deposits. So that would take into account the expected of next week's cut. And then, you know, most of the rest of the benefit is on the asset side.

Okay, great. And obviously there was a notable M&A transaction involving, you know, two large competitors in your home state there. So just curious, you know, bigger picture where you may see opportunities either to maybe add production talent or just add, you know, some high quality commercial clients over the next couple of years as that integration unfolds. I mean, historically, combinations of those types have been fertile ground for us in terms of developing business and attracting more talent.

And how this one plays out remains to be seen, but that has been the historical pattern.

Okay, understood. And then one last one. I think you called out, you know, a $3 million specific allocation on the commercial credit that moved to non-performing and 2Q. You know, just curious, you know, expectations on potential loss there and timing as well, just given that specific allocation.

Yeah, it's really too early to tell. And it's a process we're working through and it has our full attention. But, you know, as we... get further into it, we'll make the decisions and those scores that are appropriate.

But I will add that we've been very aggressive in putting specific allocations against that credit.

Yeah. Understood. I appreciate all the color. Thanks, guys. You bet. You bet.

Again, if you have a question, please press star and then one. Our next question comes from Brandon Nozzle with Hooved Group. Please go ahead.

Hey, just one or two follow-ups here. Hate to beat the dead horse on the expense number for next quarter. I just want to make sure I get the pieces. Does that number for the fourth quarter that you're providing include a partial quarter of run rate expenses from Eastern, or is it just the merger charges?

No, just the merger charges. We're basically planning for a year-end consummation, so there would be no income statement from Eastern on our numbers. So the only thing would be there is about a million dollars, anticipated million dollars or so of basically closing costs.

Okay, perfect. And then just one on fee income, just because it hasn't been asked about yet. The debit and credit, sorry, the debit and credit card income line was up like 30%, both, you know, link quarter and year over year. Just kind of curious if there's anything funky going on in that line item this quarter and kind of where you expect that particular number to come in versus this quarter's 3.1 million.

Yeah, those numbers sound a little high to us as far as the increases go. I would say just in general on the card program, it continues to grow quite well. You know, it's designed primarily for our commercial customers. It's a product that's well-received and, most importantly, well-used. That line item is very much a volume-driven line item. And so the more that we can sell but also ensuring that it's a solid product and one that our customers – can and want to use, that's also very important because, again, it is a transaction-driven line that's been doing very well for us. And as we continue to get penetration of those programs into our existing base and, of course, with the new growth, especially on the C&I side, plenty of opportunities to continue to grow that line item.

Okay. All right. Thanks for taking the time. I appreciate it. You bet.

This concludes our question and answer session. I would like to turn the conference back over to Ray Reitzma for any closing remarks.

We want to thank you for your participation in today's call and for your interest in Mercantile Bank, and that concludes the call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.