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Mercantile Bancorp in Grand Rapids, Michigan, has struck the second acquisition deal in its 28-year history, agreeing Tuesday to buy the parent company of Eastern Michigan Bank for $95.8 million in cash and stock.
The deal provides added evidence that the previously sluggish merger-and-acquisition market is
Acquiring the $505 million-asset Eastern Financial Corp. would add 12 branches in three Eastern Michigan counties — St. Clair, Huron and Sanilac — where Mercantile currently has no presence.
As of June 30, 2024, Croswell, Michigan-based Eastern held about 10% of the tri-county region’s $4.7 billion deposit base, according to the Federal Deposit Insurance Corp. The company’s $449 million deposit base is both low-cost and liquid, and it has a loan-to-deposit ratio below 50%.
Those excess deposits will undoubtedly prove valuable to a buyer like the $6.2 billion-asset Mercantile, which has a loan-to-deposit ratio close to 100% and reported annualized commercial loan growth of 6.2% in the first six months of 2025.
Eastern, by contrast, has struggled to grow loans. And while its credit losses have been negligible, it’s grappled with a rising efficiency ratio and reduced profitability in recent years, according to FDIC data. A sale to Mercantile means joining forces with a statewide institution that would have $6.7 billion of assets at closing.
“Eastern brings an incredible core deposit base … and substantial liquidity, that further enhances our balance sheet flexibility,” Mercantile CEO Ray Reistsma said Tuesday in a press release.
Mercantile, the holding company for Mercantile Bank, has traditionally operated with a high loan-to-deposit ratio, Chief Financial Officer Chuck Christmas said Tuesday on a conference call with analysts. Over the past year, the bank has focused on reducing that metric, which had reached 107% midway through 2024.
Mercantile released its second-quarter financial results on Tuesday, reporting 13% year-over-year deposit growth. The focus on funding resulted in the loan-to-deposit ratio falling below 98% at year-end 2024, but it then trended higher in the first six months of 2025.
Mercantile’s cost of deposits was 2.24% at June 30. Eastern’s was just 0.42%.
Mercantile completed its
“This one was uniquely strong,” Reitsma added, referring to the Eastern transaction.
In tandem with the Eastern deal, Mercantile announced plans to convert to a Jack Henry core operating system. Eastern has utilized a Jack Henry core for four decades.
“Our team brings deep, hands-on experience … and we’re proud to contribute that expertise to support Mercantile Bank’s systems transition,” Eastern CEO William Oldford said in the press release.
Mercantile expects to close the acquisition in the fourth quarter. The core conversion will proceed through the first quarter of 2027. Until its completion, Eastern will operate under its existing charter, with Oldford serving as regional president.
Mercantile expects the deal to yield cost savings of $5.4 million, or about 40% of Eastern’s operating expenses. The bank is projecting earnings accretion of 11% once the cost savings are fully phased in after the systems conversion.
The $95.8 million purchase price works out to 1.9 times of Eastern’s tangible book value, according to Hovde analyst Brendan Nosal. In a research note, he described the deal as “small and highly digestible.”
“Overall, we believe this deal includes highly attractive strategic merits and is likely to improve Mercantile’s franchise value,” Piper Sandler analyst Nathan Race wrote in another research note.
Mercantile reported earnings totaling $22.6 million for the quarter ending June 30, up 20% from the same three months in 2024. Nonperforming assets were 0.16% of total assets, and the company reported recoveries of approximately $100,000.