# Mercantile Bank Corp: Form 10-Q for the period ended Jun 30, 2025

- Company: [Mercantile Bank Corp](/companies/mbwm.md) (CIK 1042729)
- Form: 10-Q
- Filed: 2025-08-01
- Accepted by EDGAR: Aug 1, 2025, 08:11 ET
- Period: 2025-06-30
- Accession: 0001437749-25-024287
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1042729/000143774925024287/mbwm20250630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1042729/000143774925024287/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2025-04-01 to 2025-06-30 | $3.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2025-01-01 to 2025-06-30 | $7.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-04-01 to 2025-06-30 | $22.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2025-01-01 to 2025-06-30 | $42.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | $1.39 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | $2.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | $1.39 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | $2.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 16,239,919 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 16,219,064 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2025-01-01 to 2025-06-30 | −$10.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2025-01-01 to 2025-06-30 | $11.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2025-06-30 | $6.18bn | us-gaap:Assets |
| Total liabilities | at 2025-06-30 | $5.55bn | us-gaap:Liabilities |
| Shareholders' equity | at 2025-06-30 | $631.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 64,104 characters.

### Forward Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “indicates,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include, among others, our inability to successfully combine with Eastern Michigan Financial Corporation; adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and non-traditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches, and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the Covid-19 pandemic or similar public health threats, and measures implemented to combat them; and other risk factors, including those described in our annual report on Form 10-K for the year ended December 31, 2024. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

### Introduction

The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Community Partners, LLC ("MCP") and Mercantile Bank (“our bank”) and its subsidiaries, including Mercantile Insurance Center, Inc. at June 30, 2025 and December 31, 2024 and the results of operations for the three and six months ended June 30, 2025 and 2024. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to “us,” “we,” “our” or “the Company” include Mercantile Bank Corporation and its consolidated subsidiaries referred to above.

### Critical Accounting Policies

Accounting principles generally accepted in the United States of America (“GAAP”) are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting estimates, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2024 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

Allowance for Credit Losses (“allowance”): The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on historical credit loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Credit losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance, while recoveries of loans previously charged-off are added to the allowance.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from servicing each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

Goodwill: Accounting rules require us to determine the fair value of all the assets and liabilities of an acquired entity, and to record their fair value on the date of acquisition. We employ a variety of means in determining fair value, including the use of discounted cash flow analysis, market comparisons and projected future revenue streams. For those items for which we conclude that we have the appropriate expertise to determine fair value, we may choose to use our own calculation of fair value. In other cases, where the fair value is not readily determined, consultation with outside parties is used to determine fair value. Once valuations have been determined, the net difference between the price paid for the acquired entity and the fair value of the balance sheet is recorded as goodwill. Goodwill is assessed at least annually for impairment, with any such impairment recognized in the period identified. A more frequent assessment is performed if there are material changes in the market place or within the organizational structure.

### Financial Overview

We reported net income of $22.6 million, or $1.39 per diluted share, for the second quarter of 2025, compared with net income of $18.8 million, or $1.17 per diluted share, during the second quarter of 2024. Net income during the first six months of 2025 totaled $42.2 million, or $2.60 per diluted share, compared to $40.3 million, or $2.50 per diluted share, during the first six months of 2024. Growth in net income during both time frames reflected increased net interest income, lower provision expense and reduced federal income tax expense, which more than offset increased overhead costs. A higher level of noninterest income also contributed to the increase in net income during the second quarter of 2025.

Commercial loans increased $114 million during the first six months of 2025, providing for an annualized growth rate of about 6%. Commercial and industrial loans grew $88.1 million and multi-family and residential rental property loans increased $43.3 million, largely reflecting enhanced use of lines of credit and draws on multi-family construction loans, respectively. Non-owner occupied commercial real estate (“CRE”) loans grew $5.6 million while owner occupied CRE loans were down $23.7 million; both CRE loan segments were impacted by the full payoffs and partial paydowns of certain larger relationships largely stemming from sales of the underlying properties. Land development and construction loans expanded by $0.6 million. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 55.0% as of June 30, 2025, compared to 54.9% as of December 31, 2024. The commercial loan pipeline remains strong, and as of June 30, 2025, we had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase. We do anticipate several relatively large CRE-related loan payoffs that will negatively impact commercial loan growth during the remainder of 2025.

Residential mortgage loans decreased $28.2 million during the first six months of 2025, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio. Residential mortgage loan originations totaled $242 million during the first six months of 2025, of which about 80% were originated with the intent to sell.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling 0.21% of total loans as of June 30, 2025. Accruing loans past due 30 to 89 days remain very low, and we had no foreclosed properties at quarter end. Gross loan charge-offs totaled $0.1 million during the first six months of 2025, while recoveries of prior period loan charge-offs aggregated $0.3 million, providing for a net loan recovery of $0.2 million. We recorded provision expense of $3.7 million during the first six months of 2025, primarily reflecting increased allocations on specific financially stressed lending relationships, changes to the economic forecast and loan growth.

Interest-earning assets, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $230 million during the first six months of 2025, compared to $166 million during the first six months of 2024. The higher average balance primarily reflects our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth, as well as our desire to maintain higher levels of on balance sheet liquidity.

Total deposits increased $12.1 million during the first six months of 2025. Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing and interest-bearing checking accounts primarily reflecting seasonal and customary customers' tax and bonus payments and partnership distributions. Securities sold under agreements to repurchase (“sweep accounts”) increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $30.9 million during the first six months of 2025. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Net interest income increased $2.4 million and $3.6 million during the second quarter and first six months of 2025, respectively, compared to the same prior-year time periods, reflecting the net impact of $3.1 million and $6.7 million increases in interest income and $0.7 million and $3.1 million increases in interest expense, during the respective periods. Our net interest margin declined 14 basis points and 19 basis points during the second quarter and first six months of 2025, respectively, compared to the same prior-year time periods. Our yield on earning assets declined 30 basis points during both the second quarter and first six months of 2025, and our cost of funds declined 16 basis points and 11 basis points during those respective time periods. The lower yield on earning assets largely reflected the aggregate 100 basis point reduction in the federal funds rate during the last four months of 2024. Despite the reduction in the net interest margin, net interest income increased primarily due to solid loan growth between the second quarters of 2024 and 2025. Total loans averaged $4.70 billion and $4.40 billion during the second quarters of 2025 and 2024, respectively, reflecting growth of $299 million, or about 7%.

Noninterest income totaled $11.5 million and $20.2 million during the second quarter and first six months of 2025, respectively, compared to $9.7 million and $20.5 million during the second quarter and first six months of 2024, respectively. We recorded increased service charges on accounts, primarily reflecting growth in treasury management activity, mortgage banking income, credit and debit card fees and payroll services income during both time periods. Interest rate swap income was higher during the second quarter of 2025 compared to the second quarter of 2024, but was lower during the first six months of 2025 compared to the first six months of 2024. Noninterest income during the first six months of 2024 was also enhanced from bank owned life insurance benefit claims and higher revenue associated with a private equity investment.

Noninterest expense totaled $33.4 million and $64.5 million during the second quarter and first six months of 2025, respectively, compared to $29.7 million and $59.7 million during the second quarter and first six months of 2024, respectively. The higher level of noninterest expense during both time periods primarily resulted from increased compensation and benefit costs along with higher data processing expenses.

Federal income tax expense totaled $3.3 million and $7.9 million during the second quarter and first six months of 2025, respectively, compared to $4.7 million and $10.2 million during the second quarter and first six months of 2024, respectively. The effective tax rate was 12.9% and 15.7% during the second quarter and first six months of 2025, respectively, compared to 20.1% during both the second quarter and first six months of 2024. The reduction during the 2025 periods compared to the respective 2024 periods reflects the acquisition of transferable energy tax credits during the second quarter of 2025, which provided for a $1.5 million reduction in federal income tax expense.

### Financial Condition

Our total assets increased $129 million during the first six months of 2025, and totaled $6.18 billion as of June 30, 2025. Total loans grew $97.2 million, securities available for sale increased $96.1 million and other assets were up $22.1 million, while interest-earning assets declined $139 million during the first six months of 2025. Sweep accounts grew $121 million and total deposits increased $12.1 million, while FHLBI advances decreased $30.9 million during the first six months of 2025.

Commercial loans increased $114 million during the first six months of 2025, providing for an annualized growth rate of about 6%. Commercial and industrial loans grew $88.1 million and multi-family and residential rental property loans increased $43.3 million, largely reflecting enhanced use of lines of credit and draws on multi-family construction loans, respectively. Non-owner occupied CRE loans grew $5.6 million while owner occupied CRE loans were down $23.7 million; both CRE loan segments were impacted by the full payoffs and partial paydowns of certain larger relationships largely stemming from sales of the underlying properties. Land development and construction loans expanded by $0.6 million. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 55.0% as of June 30, 2025, compared to 54.9% as of December 31, 2024. Commercial loans totaled $3.82 billion, or 81.3% of total loans, as of June 30, 2025, compared to $3.71 billion, or 80.6% of total loans, as of December 31, 2024.

We had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase as of June 30, 2025, which we expect to be drawn over the next 12 to 18 months. Our current pipeline reports indicate approximately $165 million in new lending opportunities of which we expect a majority to be accepted and funded over the next 12 to 18 months. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit averaged about 45% during the first six months of 2025, compared to approximately 42% during all of 2024.

Residential mortgage loans totaled $799 million, or 17.0% of total loans, as of June 30, 2025. Residential mortgage loans decreased $28.2 million during the first six months of 2025, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio. Residential mortgage loan originations totaled $242 million during the first six months of 2025, of which about 80% were originated with the intent to sell.

Other consumer-related loans, primarily comprised of home equity lines of credit, totaled $77.4 million, or 1.7% of total loans, as of June 30, 2025, compared to $65.9 million, or 1.4% of total loans, as of December 31, 2024. We expect this loan portfolio segment to remain relatively stable in dollar amount but decline as a percentage of total loans in future periods as the commercial loan segment grows.

Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions or other factors. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require modification in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on nonperforming loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming loans totaled $9.7 million, or 0.2% of total loans, as of June 30, 2025, compared to $5.7 million, or 0.1% of total loans, as of December 31, 2024. We had no loans past due 90 days or more and accruing interest or foreclosed properties as of June 30, 2025, or December 31, 2024. The volume of nonperforming loans has remained under 0.3% of total loans since year-end 2015. Given the low levels of nonperforming loans and accruing loans delinquent 30 to 89 days, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

Gross loan charge-offs totaled $0.1 million during the first six months of 2025, while recoveries of prior period loan charge-offs aggregated $0.3 million, providing for a net loan recovery of $0.2 million. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries. We recorded provision expense of $3.7 million during the first six months of 2025, primarily reflecting increased allocations on specific financially stressed lending relationships, changes to the economic forecast and loan growth.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential mortgage loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

The allowance equaled $58.4 million, or 1.24% of total loans and 599% of nonperforming loans, as of June 30, 2025. The allowance was comprised of $54.5 million in general reserves relating to performing loans and $3.9 million in specific reserves on other loans, primarily nonperforming loans, as of June 30, 2025. Loans with an aggregate carrying value of $0.4 million as of June 30, 2025 had been subject to previous partial charge-offs aggregating $4.1 million over the past several years. There were no specific reserves allocated to loans that had been subject to a previous partial charge-off as of June 30, 2025.

Although we believe the allowance is adequate to absorb loan losses in our loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance.

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the six months ended June 30, 2025.

*(Dollars in thousands)*

| Commercial: | Allowance for Credit Losses | Total Loans | Allowance for Credit Losses to Total Loans | Nonaccrual Loans | Nonaccrual Loans to Total Loans | Allowance for Credit Losses to Nonaccrual Loans | Net Charge-Offs | Annualized Net Charge-Offs to Average Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $11,771 | $1,375,368 | 0.86% | $1,727 | 0.13% | 681.59% | $(47) | (0.01)% |
| Vacant land, land development and residential construction | 387 | 67,520 | 0.57 | 0 | 0 | NA | (2) | (0.01) |
| Real estate – owner occupied | 7,691 | 725,106 | 1.06 | 0 | 0 | NA | (3) | (0.00) |
| Real estate – non-owner occupied | 13,800 | 1,134,012 | 1.22 | 5,532 | 0.49 | 249.46 | 0 | 0.00 |
| Real estate – multi-family and residential rental | 4,297 | 519,152 | 0.83 | 0 | 0 | NA | (8) | (0.00) |
| Total commercial | 37,946 | 3,821,158 | 0.99 | 7,259 | 0.19 | 522.74 | (60) | (0.00) |
| Retail: |  |  |  |  |  |  |  |  |
| 1-4 family mortgages | 17,965 | 799,427 | 2.25 | 2,484 | 0.31 | 723.23 | (66) | (0.02) |
| Other consumer | 2,321 | 77,434 | 3.00 | 0 | 0 | NA | (95) | (0.27) |
| Total retail | 20,286 | 876,861 | 2.31 | 2,484 | 0.28 | 816.67 | (161) | (0.04) |
| Unallocated | 143 | NA | NA | NA | NA | NA | NA | NA |
| Total | $58,375 | $4,698,019 | 1.24% | $9,743 | 0.21% | 599.15% | $(221) | (0.01)% |

52

Securities available for sale increased $96.1 million during the first six months of 2025, totaling $826 million, or 13.4% of total assets, as of June 30, 2025. Purchases of U.S. Government agency bonds during the first six months of 2025 aggregated $91.7 million, while proceeds from maturities and calls totaled $18.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first six months of 2025, while proceeds from principal paydowns aggregated $1.8 million. Purchases of municipal bonds totaled $12.9 million during the first six months of 2025, while maturities totaled $8.4 million. As of June 30, 2025, the portfolio was primarily comprised of U.S. Government agency bonds (71%), municipal bonds (26%) and U.S. Government agency guaranteed mortgage-backed securities (3%). All of our securities are currently designated as available for sale, and are therefore stated at fair value. The fair value of securities designated as available for sale as of June 30, 2025 totaled $826 million, including a net unrealized loss of $45.3 million. The net unrealized loss equaled $63.1 million as of December 31, 2024. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect any upcoming purchases to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at about 13% to 16% of total assets.

Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third-party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines.

FHLBI stock totaled $21.5 million as of June 30, 2025, unchanged from December 31, 2024. Our investment in FHLBI stock is necessary to engage in the FHLBI’s advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

Interest-earning assets, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $230 million during the first six months of 2025, compared to $166 million during the first six months of 2024. The higher average balance primarily reflects our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth, as well as our desire to maintain higher levels of on balance sheet liquidity.

Net premises and equipment equaled $54.8 million as of June 30, 2025, compared to $53.4 million as of December 31, 2024. Depreciation expense totaled $2.5 million during the first six months of 2025, while investments associated with renovations of existing facilities and equipment purchases aggregated $3.9 million.

Other assets totaled $170 million as of June 30, 2025, compared to $148 million as of December 31, 2024. The increase during the period was primarily attributable to an increase of $13.5 million in Low-Income Housing Tax Credit and Historic Tax Credit entity investments and an increase of $9.4 million in federal income tax receivable generated from our investments in transferable energy tax credits.

Total deposits increased $12.1 million during the first six months of 2025. Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing and interest-bearing checking accounts primarily reflecting seasonal and customary customers' tax and bonus payments and partnership distributions. Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. FHLBI advances declined $30.9 million during the first six months of 2025. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Uninsured deposits totaled approximately $2.4 billion, or about 52% of total deposits, as of June 30, 2025, compared to approximately $2.2 billion, or 46% of total deposits, as of December 31, 2024. The uninsured amounts are estimates based on the methodologies and assumptions we use for regulatory reporting requirements.

Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. In addition, the aggregate balance of sweep accounts is subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that many of the customers maintain. The average balance of sweep accounts equaled $232 million during the first six months of 2025, with a high daily balance of $286 million and a low daily balance of $115 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

FHLBI advances declined $30.9 million during the first six months of 2025, totaling $356 million as of June 30, 2025. New bullet advances totaled $20.0 million, while bullet advance maturities aggregated $50.0 million during the first six months of 2025. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.06 billion, with remaining availability based on collateral equaling $698 million, as of June 30, 2025.

Shareholders’ equity increased $47.0 million during the first six months of 2025, equaling $632 million as of June 30, 2025. Positively impacting shareholders’ equity during the first six months of 2025 was net income of $42.2 million, which was partially offset by the payment of cash dividends totaling $11.8 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.6 million. A $14.1 million after-tax increase in the market value of our available for sale securities portfolio, reflecting a decline in market interest rates, positively impacted shareholders’ equity during the first six months of 2025.

### Liquidity

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured and called securities, federal funds sold and interest-earning deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximizes profitability, while providing adequate liquidity.

To assist in providing needed funds and managing interest rate risk, we periodically obtain monies from wholesale funding sources. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. In addition, the aggregate balance of sweep accounts is subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that many of the customers maintain. The average balance of sweep accounts equaled $232 million during the first six months of 2025, with a high daily balance of $286 million and a low daily balance of $115 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

Information regarding our repurchase agreements as of June 30, 2025 and during the first six months of 2025 is as follows:

*(Dollars in thousands)*

|  |  |
| --- | ---: |
| Outstanding balance at June 30, 2025 | $242,785 |
| Weighted average interest rate at June 30, 2025 | 3.17% |
| Maximum daily balance six months ended June 30, 2025 | $285,549 |
| Average daily balance for six months ended June 30, 2025 | $231,926 |
| Weighted average interest rate for six months ended June 30, 2025 | 3.20% |

FHLBI advances declined $30.9 million during the first six months of 2025, totaling $356 million as of June 30, 2025. New bullet advances totaled $20.0 million, while bullet advance maturities aggregated $50.0 million during the first six months of 2025. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.06 billion, with remaining availability based on collateral equaling $698 million, as of June 30, 2025.

We also have the ability to borrow up to an aggregate $70.0 million on a daily basis through correspondent banks using established unsecured federal funds purchased lines of credit. We had limited activity on these lines of credit during the first six months of 2025. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $208 million during the first six months of 2025. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $153 million as of June 30, 2025. We did not utilize this line of credit during the first six months of 2025 or at any time during the previous 16 fiscal years, and do not plan to access this line of credit in future periods.

The following table reflects, as of June 30, 2025, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

*(Dollars in thousands)*

|  | One Year or Less | One to Three Years | Three to Five Years | Over Five Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Deposits without a stated maturity | $3,702,098 | $0 | $0 | $0 | $3,702,098 |
| Time deposits | 921,996 | 76,860 | 9,518 | 0 | 1,008,374 |
| Short-term borrowings | 242,785 | 0 | 0 | 0 | 242,785 |
| Federal Home Loan Bank advances | 90,899 | 181,917 | 62,087 | 21,318 | 356,221 |
| Subordinated debentures | 0 | 0 | 0 | 50,672 | 50,672 |
| Subordinated notes | 0 | 0 | 0 | 89,486 | 89,486 |
| Other borrowed money | 0 | 0 | 0 | 1,520 | 1,520 |
| Premises and equipment leases | 1,177 | 2,154 | 1,178 | 1,173 | 5,682 |

The balance of certificates of deposit exceeding the FDIC insured limit and their maturity profile as of June 30, 2025 and December 31, 2024 were as follows:

*(Dollars in thousands)*

|  | June 30, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Up to three months | $148,785 | $101,062 |
| Three months to six months | 89,460 | 66,314 |
| Six months to twelve months | 94,674 | 161,409 |
| Over twelve months | 22,958 | 20,476 |
| Total certificates of deposit | $355,877 | $349,261 |

In addition to normal loan funding and deposit flow, we must maintain liquidity to meet the demands of certain unfunded loan commitments and standby letters of credit. As of June 30, 2025, we had a total of $1.99 billion in unfunded loan commitments and $26.4 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $1.83 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $165 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels and include such data in our overall liquidity management.

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. We have developed contingency funding plans that provide a framework for meeting liquidity disruptions.

### Capital Resources

Shareholders’ equity increased $47.0 million during the first six months of 2025, equaling $632 million as of June 30, 2025. Positively impacting shareholders’ equity during the first six months of 2025 was net income of $42.2 million, which was partially offset by the payment of cash dividends totaling $11.8 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.6 million. A $14.1 million after-tax increase in the market value of our available for sale securities portfolio, reflecting a decline in market interest rates, positively impacted shareholders’ equity during the first six months of 2025.

We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. As of June 30, 2025, our bank’s total risk-based capital ratio was 13.9%, unchanged from December 31, 2024. Our bank’s total regulatory capital increased $20.1 million during the first six months of 2025, in large part reflecting net income totaling $47.5 million, which was partially offset by cash dividends paid to us aggregating $31.2 million. As of June 30, 2025, our bank’s total regulatory capital equaled $779 million, or $218 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of June 30, 2025 and December 31, 2024 are disclosed in Note 13 of the Notes to Consolidated Financial Statements.

### Results of Operations

We recorded net income of $22.6 million, or $1.39 per basic and diluted share, for the second quarter of 2025, compared with net income of $18.8 million, or $1.17 per basic and diluted share, for the second quarter of 2024. We recorded net income of $42.2 million, or $2.60 per basic and diluted share, for the first six months of 2025, compared with net income of $40.3 million, or $2.50 per basic and diluted share, for the first six months of 2024. Diluted earnings per share increased $0.22, or 18.8%, during the second quarter of 2025, and $0.10, or 4.0%, during the first six months of 2025, compared with the respective prior-year periods.

The increases in net income during the 2025 periods compared to the respective 2024 periods primarily reflected growth in net interest income, reduced federal income tax expense, and lower provision expense, which more than offset higher noninterest expense. A higher level of noninterest income, mainly reflecting growth in mortgage banking income, interest rate swap income, treasury management fees, and payroll service fees, also contributed to the increase in net income during the second quarter of 2025. Net interest income increased as earning asset expansion and a decrease in the cost of funds outweighed a lower yield on earning assets and growth in interest-bearing liabilities. The decreases in federal income tax expense primarily resulted from the recognition of tax benefits stemming from the acquisition of transferable energy tax credits during the second quarter of 2025. The provision expense recorded during the 2025 periods mainly reflected a net increase in individual allocations driven by a commercial construction loan that was placed on nonaccrual during the second quarter and allocations necessitated by loan growth; the net impact of changes to the economic forecast also contributed to the provision expense recorded during the first six months of 2025. Noninterest expense increased during the 2025 periods primarily due to higher levels of salary and benefit and data processing costs and allocations to the reserve for unfunded loan commitments.

Interest income during the second quarter of 2025 was $82.0 million, an increase of $3.1 million, or 3.9%, from the $78.9 million earned during the second quarter of 2024. The increase resulted from growth in average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $5.71 billion during the second quarter of 2025, up $494 million, or 9.5%, from the level of $5.22 billion during the prior-year second quarter; average loans were up $299 million, average securities increased $184 million, and average interest-earning assets grew $11.0 million. The yield on average earning assets was 5.77% during the current-year second quarter, a decrease from 6.07% during the respective 2024 period. The lower yield mainly resulted from a decreased yield on loans and a change in earning asset mix, which more than offset an enhanced yield on securities stemming from reinvestment and portfolio expansion activities in a higher interest rate environment. The yield on loans was 6.32% during the second quarter of 2025, down from 6.64% during the second quarter of 2024 primarily due to lower interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) lowering the targeted federal funds rate. The FOMC decreased the targeted federal funds rate by 50 basis points in September of 2024 and 25 basis points in each of November and December of 2024, during which time average variable-rate commercial loans represented approximately 73% of average total commercial loans. Reflecting the success of a strategic initiative to reduce the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans represented a decreased percentage of earning assets and lower-yielding securities accounted for an increased percentage of earning assets in the second quarter of 2025 compared to the second quarter of 2024. The yield on securities equaled 2.97% during the second quarter of 2025, up from 2.30% during the prior-year second quarter.

Interest income during the first six months of 2025 was $162 million, an increase of $6.7 million, or 4.3%, from the $156 million earned during the first six months of 2024. The increase resulted from a higher level of average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $5.70 billion during the first six months of 2025, up $546 million, or 10.6%, from the level of $5.15 billion during the respective 2024 period; average loans increased $315 million, average securities grew $167 million, and average interest-earning assets were up $63.6 million. The yield on average earning assets was 5.76% during the first six months of 2025, a decline from 6.06% during the first six months of 2024. The decreased yield mainly resulted from a lower yield on loans and a change in earning asset mix, which more than offset an improved yield on securities reflecting reinvestment and portfolio expansion activities in a higher interest rate environment. The yield on loans was 6.31% during the first six months of 2025, down from 6.65% during the respective prior-year period largely due to reduced interest rates on variable-rate commercial loans stemming from the aforementioned FOMC interest rate cuts. Higher-yielding loans accounted for a decreased percentage of earning assets and lower-yielding securities and other interest-earning assets represented increased percentages of earning assets in the first six months of 2025 compared to the first six months of 2024. The yield on securities equaled 2.93% during the first six months of 2025, up from 2.25% during the respective 2024 period.

Interest expense during the second quarter of 2025 was $32.5 million, an increase of $0.7 million, or 2.1%, from the $31.8 million expensed during the second quarter of 2024. The higher level of interest expense resulted from growth in average interest-bearing liabilities, which more than offset a decline in the weighted average cost of these funds. Average interest-bearing liabilities totaled $4.21 billion during the second quarter of 2025, compared to $3.76 billion during the prior-year second quarter, representing an increase of $455 million, or 12.1%. The weighted average cost of interest-bearing liabilities declined from 3.40% during the second quarter of 2024 to 3.09% during the second quarter of 2025 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment that began in September of 2024 in conjunction with the FOMC’s lowering of the targeted federal funds rate. A change in funding mix, primarily consisting of decreases in average noninterest-bearing checking accounts and lower-cost non-time deposits and increases in average higher-cost money market accounts and time deposits as a percentage of total funding sources, negatively impacted the weighted average cost of interest-bearing liabilities during the second quarter of 2025. The increases in money market accounts and time deposits reflected new deposit relationships, growth in existing deposit relationships, and deposit migration.

Interest expense during the first six months of 2025 was $64.3 million, an increase of $3.1 million, or 5.1%, from the $61.2 million expensed during the first six months of 2024. The increased interest expense reflected growth in average interest-bearing liabilities, which more than offset a reduction in the weighted average cost of these funds. Average interest-bearing liabilities totaled $4.20 billion during the first six months of 2025, compared to $3.68 billion during the respective 2024 period, representing an increase of $515 million, or 14.0%. The weighted average cost of interest-bearing liabilities decreased from 3.33% during the first six months of 2024 to 3.09% during the first six months of 2025 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment starting in September of 2024 and coinciding with the FOMC’s lowering of the targeted federal funds rate. Increases in average higher-cost money market accounts and time deposits as a percentage of total funding sources negatively impacted the cost of funds during the first six months of 2025.

Net interest income during the second quarter of 2025 was $49.5 million, an increase of $2.4 million, or 5.1%, from the $47.1 million earned during the respective 2024 period. The increase reflected growth in earning assets, which more than offset a lower net interest margin. The net interest margin was 3.49% in the current-year second quarter, down from 3.63% in the second quarter of 2024 due to a decreased yield on average earning assets, which more than offset a decline in the cost of funds. The lower yield on average earning assets mainly resulted from a decreased yield on commercial loans, largely reflecting the impact of the previously mentioned FOMC rate cuts. The cost of funds equaled 2.28% in the second quarter of 2025, down from 2.44% in the prior-year second quarter primarily due to lower costs of money market accounts and time deposits, reflecting the decreasing interest rate environment over the last four months of 2024.

Net interest income during the first six months of 2025 was $98.0 million, an increase of $3.6 million, or 3.8%, from the $94.4 million earned during the respective 2024 period. The increase reflected earning asset expansion, which more than offset a decreased net interest margin. The net interest margin was 3.49% in the first six months of 2025, down from 3.68% in the first six months of 2024 due to a lower yield on earning assets, which outweighed a decreased cost of funds. The reduced yield on average earning assets primarily reflected a decreased yield on commercial loans, in large part stemming from the aforementioned FOMC rate cuts. The cost of funds equaled 2.27% in the first six months of 2025, down from 2.38% in the respective 2024 period mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreasing interest rate environment during the last four months of 2024.

The following tables set forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflect the average yield on assets and average cost of liabilities for the second quarters and first six months of 2025 and 2024. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the period presented. Tax-exempt securities interest income and yield for the second quarters and first six months of 2025 and 2024 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $255,000 and $60,000 in the second quarters of 2025 and 2024, respectively, and $510,000 and $120,000 in the first six months of 2025 and 2024, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of approximately two basis points for each of the 2025 periods and less than one basis point for each of the 2024 periods.

MERCANTILE BANK CORPORATION

*(dollars in thousands)*

| ASSETS | Quarters ended June 30, 2025 Average Balance | Interest | Average Rate | 2024 Average Balance | Interest | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans | $4,695,367 | $73,962 | 6.32% | $4,396,475 | $72,819 | 6.64% |
| Investment securities | 824,777 | 6,115 | 2.97 | 640,627 | 3,684 | 2.30 |
| Interest-earning assets | 193,637 | 2,136 | 4.36 | 182,636 | 2,436 | 5.28 |
| Total interest - earning assets | 5,713,781 | 82,213 | 5.77 | 5,219,738 | 78,939 | 6.07 |
| Allowance for credit losses | (57,801) |  |  | (53,163) |  |  |
| Other assets | 405,839 |  |  | 366,687 |  |  |
| Total assets | $6,061,819 |  |  | $5,533,262 |  |  |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY** |  |  |  |  |  |  |
| Interest-bearing deposits | $3,463,067 | $25,725 | 2.98% | $2,957,011 | $24,710 | 3.35% |
| Short-term borrowings | 242,605 | 1,919 | 3.17 | 225,607 | 1,757 | 3.12 |
| Federal Home Loan Bank advances | 365,672 | 2,897 | 3.13 | 434,776 | 3,252 | 2.96 |
| Other borrowings | 141,534 | 1,938 | 5.42 | 140,194 | 2,088 | 5.89 |
| Total interest-bearing liabilities | 4,212,878 | 32,479 | 3.09 | 3,757,588 | 31,807 | 3.40 |
| Noninterest-bearing deposits | 1,152,631 |  |  | 1,139,887 |  |  |
| Other liabilities | 80,081 |  |  | 94,919 |  |  |
| Shareholders’ equity | 616,229 |  |  | 540,868 |  |  |
| Total liabilities and shareholders’ equity | $6,061,819 |  |  | $5,533,262 |  |  |
| Net interest income |  | $49,734 |  |  | $47,132 |  |
| Net interest rate spread |  |  | 2.68% |  |  | 2.67% |
| Net interest spread on average assets |  |  | 3.29% |  |  | 3.41% |
| Net interest margin on earning assets |  |  | 3.49% |  |  | 3.63% |

59

MERCANTILE BANK CORPORATION

*(dollars in thousands)*

| ASSETS | Six months ended June 30, 2025 Average Balance | Interest | Average Rate | 2024 Average Balance | Interest | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans | $4,662,415 | $145,954 | 6.31% | $4,347,819 | $144,089 | 6.65% |
| Investment securities | 804,804 | 11,782 | 2.93 | 637,363 | 7,166 | 2.25 |
| Interest-earning assets | 230,051 | 5,071 | 4.38 | 166,435 | 4,469 | 5.31 |
| Total interest - earning assets | 5,697,270 | 162,807 | 5.76 | 5,151,617 | 155,724 | 6.06 |
| Allowance for credit losses | (56,735) |  |  | (52,104) |  |  |
| Other assets | 399,574 |  |  | 359,456 |  |  |
| Total assets | $6,040,109 |  |  | $5,458,969 |  |  |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY** |  |  |  |  |  |  |
| Interest-bearing deposits | $3,452,840 | $50,918 | 2.97% | $2,873,659 | $46,934 | 3.28% |
| Short-term borrowings | 232,005 | 3,682 | 3.20 | 221,141 | 3,412 | 3.09 |
| Federal Home Loan Bank advances | 370,912 | 5,795 | 3.11 | 447,513 | 6,651 | 2.94 |
| Other borrowings | 141,333 | 3,875 | 5.45 | 140,059 | 4,173 | 5.89 |
| Total interest-bearing liabilities | 4,197,090 | 64,270 | 3.09 | 3,682,372 | 61,170 | 3.33 |
| Noninterest-bearing deposits | 1,149,359 |  |  | 1,157,886 |  |  |
| Other liabilities | 88,412 |  |  | 84,687 |  |  |
| Shareholders’ equity | 605,248 |  |  | 534,024 |  |  |
| Total liabilities and shareholders’ equity | $6,040,109 |  |  | $5,458,969 |  |  |
| Net interest income |  | $98,537 |  |  | $94,554 |  |
| Net interest rate spread |  |  | 2.67% |  |  | 2.73% |
| Net interest spread on average assets |  |  | 3.29% |  |  | 3.47% |
| Net interest margin on earning assets |  |  | 3.49% |  |  | 3.68% |

60

Provisions for credit losses of $1.6 million and $3.5 million were recorded during the second quarters of 2025 and 2024, respectively, and $3.7 million and $4.8 million during the first six months of 2025 and 2024, respectively. The provision expense recorded during the second quarter of 2025 mainly reflected an individual allocation of $2.5 million associated with a commercial construction loan relationship that was placed on nonaccrual during the quarter and allocations of $0.7 million necessitated by net loan growth, which more than offset an aggregate reduction of $1.0 million in individual allocations related to nonperforming loan relationships resulting from full payoffs and partial paydowns. The provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations driven by the aforementioned commercial construction loan that was placed on nonaccrual during the second quarter, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. The provision expense recorded during the second quarter of 2024 primarily reflected an individual allocation for a nonperforming nonreal-estate-related commercial loan relationship and allocations necessitated by net loan growth, while the provision expense recorded during the first six months of 2024 mainly reflected the aforementioned individual allocation, an individual allocation for a different nonperforming nonreal-estate-related commercial loan relationship during the first quarter, and allocations required by net loan growth. Ongoing strong loan quality metrics, including low levels of loan charge-offs, during the 2025 and 2024 periods largely mitigated additional reserves associated with the previously mentioned factors.

Noninterest income totaled $11.5 million during the second quarter of 2025, up $1.8 million, or 18.4%, from $9.7 million during the respective 2024 period. The increase primarily stemmed from growth in mortgage banking income, interest rate swap income, treasury management fees, bank owned life insurance income, and payroll service fees, along with the recognition of tax credit syndication fees, which more than offset a decrease in revenue generated from investments in private equity funds. The higher level of mortgage banking income mainly resulted from increases in the percentage of loans originated with the intent to sell, which equaled approximately 79% during the current-year second quarter compared to approximately 75% during the second quarter of 2024, and total loan originations, which were up approximately 16% during the second quarter of 2025 compared to the corresponding 2024 period. Interest rate swap income can vary greatly from period to period due to the timing of closing transactions. The increases in treasury management and payroll service fees primarily reflected clients’ expanded use of products and services and successful marketing efforts. Noninterest income during the second quarter of 2024 included gains on the sales of other real estate owned totaling $0.3 million.

Noninterest income totaled $20.2 million during the first six months of 2025, compared to $20.5 million during the first six months of 2024. Noninterest income during the first six months of 2024 included bank owned life insurance death benefit claims and gains on the sales of other real estate owned totaling $0.7 million and $0.4 million, respectively. Excluding these transactions, noninterest income increased $0.7 million, or 3.8%, in the first six months of 2025 compared to the respective 2024 period. The growth mainly reflected higher levels of mortgage banking income, mainly stemming from increases in the percentage of loans originated with the intent to sell and total loan production, and treasury management and payroll service fees, in large part reflecting customers’ increased use of products and services and new client acquisition, along with the recording of tax credit syndication fees, which more than offset declines in revenue generated from investments in private equity funds and interest rate swap income. The percentage of mortgage loans originated with the intent to sell increased from approximately 74% during the first six months of 2024 to approximately 80% during the first six months of 2025, and total mortgage loan originations were up nearly 20% during the respective periods.

Noninterest expense totaled $33.4 million during the second quarter of 2025, up from $29.7 million during the prior-year second quarter. Noninterest expense totaled $64.5 million during the first six months of 2025, compared to $59.7 million during the first six months of 2024. The increases primarily resulted from higher salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, larger bonus accruals, lower residential mortgage loan deferred salary costs, higher health insurance claims, and increased payroll taxes. Higher allocations to the reserve for unfunded loan commitments, largely stemming from an increase in commercial loan commitments, and data processing costs, primarily reflecting increased software support costs, also contributed to the rises in noninterest expense. Lower depreciation expense, mainly reflecting facility expansion and leasehold improvement projects becoming fully depreciated during 2024, positively impacted noninterest expense during both 2025 periods. Noninterest expense during the first six months of 2024 included contributions to The Mercantile Bank Foundation totaling $0.7 million.

During the second quarter of 2025, we recorded income before federal income tax of $26.0 million and a federal income tax expense of $3.3 million. During the second quarter of 2024, we recorded income before federal income tax of $23.5 million and a federal income tax expense of $4.7 million. During the first six months of 2025, we recorded income before federal income tax of $50.0 million and a federal income tax expense of $7.8 million. During the first six months of 2024, we recorded income before federal income tax of $50.5 million and a federal income tax expense of $10.2 million. The decreases in federal income tax expense during the 2025 periods primarily reflected the acquisition of transferable energy tax credits during the second quarter, which provided for an aggregate $1.5 million tax benefit. The recording of the tax benefit positively impacted our effective tax rate, which equaled 12.9% and 15.7% in the second quarter and first six months of 2025, respectively, compared to 20.1% in the respective 2024 periods. The previously mentioned bank owned life insurance death benefit claims, substantially all of which were nontaxable, positively impacted the effective tax rate in the first six months of 2024.

## Market risk

As filed, 7,468 characters.

Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. We have only limited agricultural-related loan assets and therefore have no significant exposure to changes in commodity prices. Any impact that changes in foreign exchange rates and commodity prices would have on interest rates is assumed to be insignificant. Interest rate risk is the exposure of our financial condition to adverse movements in interest rates. We derive our income primarily from the excess of interest collected on our interest-earning assets over the interest paid on our interest-bearing liabilities. The rates of interest we earn on our assets and owe on our liabilities generally are established contractually for a period of time. Since market interest rates change over time, we are exposed to lower profitability if we cannot adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to our earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to our safety and soundness.

Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. Our interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems and internal control procedures are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, we assess the existing and potential future effects of changes in interest rates on our financial condition, including capital adequacy, earnings, liquidity and asset quality.

We use two interest rate risk measurement techniques. The first, which is commonly referred to as GAP analysis, measures the difference between the dollar amounts of interest sensitive assets and liabilities that will be refinanced or repriced during a given time period. A significant repricing gap could result in a negative impact to our net interest margin during periods of changing market interest rates.

The following table depicts our GAP position as of June 30, 2025:

*(Dollars in thousands)*

| Assets: | Within Three Months | Three to Twelve Months | One to Five Years | After Five Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Loans (1) | $3,037,982 | $176,506 | $1,048,767 | $434,764 | $4,698,019 |
| Securities available for sale (2) | 37,008 | 49,541 | 370,793 | 390,586 | 847,928 |
| Interest-earning assets | 192,165 | 1,257 | 3,750 | 0 | 197,172 |
| Mortgage loans held for sale | 27,569 | 0 | 0 | 0 | 27,569 |
| Allowance for credit losses | 0 | 0 | 0 | 0 | (58,375) |
| Other assets | 0 | 0 | 0 | 0 | 468,675 |
| Total assets | $3,294,724 | $227,304 | $1,423,310 | $825,350 | $6,180,988 |
| Liabilities: |  |  |  |  |  |
| Interest-bearing deposits | 2,829,811 | 613,482 | 86,378 | 0 | 3,529,671 |
| Short-term borrowings | 242,785 | 0 | 0 | 0 | 242,785 |
| Federal Home Loan Bank advances | 10,000 | 70,899 | 254,004 | 21,318 | 356,221 |
| Other borrowed money | 52,192 | 0 | 89,486 | 0 | 141,678 |
| Noninterest-bearing checking | 0 | 0 | 0 | 0 | 1,180,801 |
| Other liabilities | 0 | 0 | 0 | 0 | 98,313 |
| Total liabilities | 3,134,788 | 684,381 | 429,868 | 21,318 | 5,549,469 |
| Shareholders' equity | 0 | 0 | 0 | 0 | 631,519 |
| Total liabilities & shareholders' equity | $3,134,788 | $684,381 | $429,868 | $21,318 | $6,180,988 |
| Net asset (liability) GAP | $159,936 | $(457,077) | $993,442 | $804,032 |  |
| Cumulative GAP | $159,936 | $(297,141) | $696,301 | $1,500,333 |  |
| Percent of cumulative GAP to total assets | 2.6% | (4.8)% | 11.3% | 24.3% |  |

(1) Floating rate loans that are currently at interest rate floors are treated as fixed rate loans and are reflected using maturity date and not repricing frequency.

(2) Mortgage-backed securities are categorized by expected maturities based upon prepayment trends as of June 30, 2025.

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The second interest rate risk measurement we use is commonly referred to as net interest income simulation analysis. We believe that this methodology provides a more accurate measurement of interest rate risk than the GAP analysis, and therefore, it serves as our primary interest rate risk measurement technique. The simulation model assesses the direction and magnitude of variations in net interest income resulting from potential changes in market interest rates.

Key assumptions in the model include prepayment speeds on various loan and investment assets; cash flows and maturities of interest sensitive assets and liabilities; and changes in market conditions impacting loan and deposit volume and pricing. These assumptions are inherently uncertain, subject to fluctuation and revision in a dynamic environment; therefore, the model cannot precisely estimate net interest income or exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions and our strategies, among other factors.

We conducted multiple simulations as of June 30, 2025, in which it was assumed that changes in market interest rates occurred ranging from up 300 basis points to down 400 basis points in equal quarterly instalments over the next twelve months. The following table reflects the suggested dollar and percentage changes in net interest income over the next twelve months in comparison to the $226 million in net interest income projected using our balance sheet amounts and anticipated replacement rates as of June 30, 2025. The resulting estimates are generally within our policy parameters established to manage and monitor interest rate risk.

*(Dollars in thousands)*

| Interest Rate Scenario | Dollar Change In Net Interest Income | Percent Change In Net Interest Income |
| --- | ---: | ---: |
| Interest rates down 400 basis points | $(29,500) | (13.1)% |
| Interest rates down 300 basis points | (19,100) | (8.5) |
| Interest rates down 200 basis points | (15,000) | (6.6) |
| Interest rates down 100 basis points | (6,600) | (2.9) |
| Interest rates up 100 basis points | 6,200 | 2.7 |
| Interest rates up 200 basis points | 12,800 | 5.7 |
| Interest rates up 300 basis points | 19,000 | 8.4 |

The resulting estimates have been significantly impacted by the current interest rate and economic environments, as adjustments have been made to critical model inputs with regards to traditional interest rate relationships. This is especially important as it relates to floating rate commercial loans, which comprise a sizable portion of our balance sheet.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; level of nonperforming assets; economic and competitive conditions; potential changes in lending, investing, and deposit gathering strategies; client preferences; and other factors.

## Controls and procedures

As filed, 718 characters.

As of June 30, 2025, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 2025.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,536 characters.

When evaluating the risk of an investment in our common stock, potential investors should carefully consider the risk factors appearing in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2024.

On July 22, 2025, we announced that Mercantile Bank Corporation ("Mercantile") had entered into a definitive merger agreement (“Merger Agreement”) with Eastern Michigan Financial Corporation (“Eastern”) pursuant to which Mercantile will acquire Eastern in a stock and cash transaction (the “Merger”). The following represents material changes in our risk factors from the risk factors set forth in our Annual Report on Form 10-K.

***The Merger may not be consummated, which could have an adverse impact on our business and on the value of our common stock.***

We expect the Merger to close during the fourth quarter of 2025, but the Merger is subject to a number of closing conditions. Satisfaction of many of these conditions is beyond our control. If these conditions are not satisfied or waived, the Merger will not be completed. Certain of the conditions that remain to be satisfied include, but are not limited to:

- the continued accuracy of the representations and warranties made by the parties in the Merger Agreement;
- the approval by Eastern shareholders of the Merger Agreement and the Merger;
- the performance by each party of its respective obligations under the Merger Agreement;
- the receipt of required regulatory approvals, including the approval of the Federal Reserve and the Michigan Department of Insurance and Financial Services;
- the absence of any injunction, order, or decree restraining, enjoining or otherwise prohibiting the Merger; and
- the absence of any material adverse change in the financial condition, business or results of operations of Eastern and Mercantile.

Additionally, we may become subject to litigation related to the Merger. As a result, the Merger may not close as scheduled, or at all.

Either Eastern or Mercantile may terminate the Merger Agreement under certain circumstances. Failure to complete the Merger or any delays in completing the Merger on the terms and timing we expect could have an adverse impact on our future business, operations and results of operations including, but not limited to:

- having to pay certain significant transaction costs without realizing any of the anticipated benefits of completing the Merger;
- failing to pursue other beneficial opportunities due to the focus of our management on the Merger, without realizing any of the anticipated benefits of completing the Merger; and
- declines in our share price to the extent that the current market prices reflect an assumption by the market that the Merger will be completed.

***The Merger may be more difficult, costly or time consuming than expected, and we may fail to realize the anticipated benefits of the Merger.***

The success of the Merger will depend on, among other things, our ability to integrate Eastern into our business in a manner that facilitates growth opportunities and achieves the anticipated benefits of the Merger. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be less than anticipated, and integration may result in additional unforeseen expenses.

There is a significant degree of difficulty inherent in the process of integrating an acquisition, including challenges consolidating certain operations and functions (including regulatory functions), integrating technologies, organizations, procedures, policies and operations, addressing differences in the business cultures of Mercantile and Eastern and retaining key personnel. The integration will be complex and time consuming and may involve delays or additional and unforeseen expenses. The integration process and other disruptions resulting from the Merger may also disrupt our ongoing business. Any failure to successfully or cost-effectively integrate Eastern following the closing of the Merger as well as any delays encountered in the integration process, could have an adverse effect on the revenues, levels of expenses and operating results of the combined company following the completion of the Merger, which may adversely affect the value of the common stock of the combined company following the completion of the Merger.

***Mercantile and Eastern will be subject to various uncertainties while the Merger is pending that could adversely affect our financial results or the anticipated benefits of the Merger.***

Uncertainty about the effect of the Merger on counterparties to contracts, employees and other parties may have an adverse effect on us or the anticipated benefits of the Merger. These uncertainties could cause contract counterparties and others who deal with us or Eastern to seek to change existing business relationships with us or Eastern, and may impact our and Eastern’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter.

The pursuit of the Merger and the preparation for the integration of the two companies may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results prior to and/or following the completion of the Merger and could limit us from pursuing attractive business opportunities and making other changes to our business prior to completion of the Merger or termination of the Merger Agreement.

### We expect to incur substantial transaction costs in connection with the Merger.

We expect to incur a significant amount of non-recurring expenses in connection with the Merger, including investment banking, legal, accounting, consulting and other expenses. In general, these expenses are payable by us whether or not the Merger is completed. Additional unanticipated costs may be incurred following consummation of the Merger in the course of the integration of our businesses and the business of Eastern. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.

Filed Aug 1, 2025.
Source: SEC EDGAR, the filing index for accession 0001437749-25-024287. Last ingested by Listed: Oct 31, 2026, 03:06 ET. No prices; not investment advice.