What changed in this filing

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Item 1. Financial Statements

2025-08-01 compared with 2025-05-02 · 479 added, 271 removed, 1534 unchanged (33% of the section changed)

4 unchanged sentences

$ 98,900 $ 56,991

Interest-earning deposits

Interest-earning assets

197,172 336,019

43 unchanged sentences

40,000,000 shares authorized;

16,235,660 shares issued and outstanding at March 31, 2025 and 16,146,374 shares issued and outstanding at December 31, 2024

16,248,694 shares issued and outstanding at June 30, 2025 and 16,146,374 shares issued and outstanding at December 31, 2024

302,294 299,705

1 unchanged sentence

364,991 334,646

Accumulated other comprehensive gain (loss)

Accumulated other comprehensive income (loss)

( 35,766 ) ( 49,825 )

7 unchanged sentences

(Dollars in thousands except per share amounts)

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

Interest income

2 unchanged sentences

Securities, taxable

4,679 2,656 8,919 5,101

Securities, tax-exempt

Interest-earning deposits

1,181 968 2,353 1,945

Interest-earning assets

2,136 2,436 5,071 4,469

Total interest income

3 unchanged sentences

Short-term borrowings

1,919 1,757 3,682 3,412

Federal Home Loan Bank advances

2,897 3,252 5,795 6,651

Subordinated debt and other borrowings

1,938 2,088 3,875 4,173

Total interest expense

3 unchanged sentences

Provision for credit losses

1,600 3,500 3,700 4,800

Net interest income after provision for credit losses

2 unchanged sentences

Service charges on deposit and sweep accounts

1,967 1,692 3,806 3,224

Mortgage banking income

3,969 3,023 6,620 5,365

Credit and debit card income

2,350 2,266 4,551 4,387

Interest rate swap fees

1,230 766 1,310 2,104

Payroll services income

783 686 1,823 1,582

Earnings on bank owned life insurance

561 437 1,104 1,609

602 811 950 2,277

Total noninterest income

11,462 9,681 20,164 20,548

Noninterest expense

1 unchanged sentence

20,711 17,913 40,268 36,150

2,155 2,220 4,273 4,509

Furniture and equipment depreciation, rent and maintenance

826 923 1,613 1,852

Data processing costs

3,599 3,415 7,369 6,704

Charitable foundation contributions

Other expense

6,086 5,262 10,955 9,758

Total noninterest expense

4 unchanged sentences

3,344 4,730 7,853 10,154

$ 22,618 $ 18,786 $ 42,155 $ 40,348

Basic earnings per share

10 unchanged sentences

(Dollars in thousands)

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

$ 22,618 $ 18,786 $ 42,155 $ 40,348

Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale

6,204 ( 342 ) 17,797 ( 3,491 )

Tax effect of unrealized holding gains (losses) on securities available for sale

( 1,303 ) 73 ( 3,738 ) 734

Other comprehensive income (loss), net of tax

4,901 ( 269 ) 14,059 ( 2,757 )

Comprehensive income (loss)

$ 27,519 $ 18,517 $ 56,214 $ 37,591

See accompanying notes to consolidated financial statements.

6 unchanged sentences

Income (Loss)

Balances, April 1, 2025

$ 0 $ 300,732 $ 348,281 $ ( 40,667 ) $ 608,346

Employee stock purchase plan ( 322 shares)

Dividend reinvestment plan ( 4,687 shares)

Stock grants to directors for retainer fees ( 9,210 shares)

Stock-based compensation expense

Cash dividends ($ 0.37 per common share)

( 5,908 ) ( 5,908 )

Net income for the three months ended June 30, 2025

22,618 22,618

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect

Balances, June 30, 2025

$ 0 $ 302,294 $ 364,991 $ ( 35,766 ) $ 631,519

See accompanying notes to consolidated financial statements.

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

Comprehensive

Shareholders’

(Dollars in thousands except per share amounts)

Income (Loss)

Balances, January 1, 2025

6 unchanged sentences

( 11,810 ) ( 11,810 )

Net income for the three months ended March 31, 2025

Net income for the six months ended June 30, 2025

42,155 42,155

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect

Balances, March 31, 2025

14,059 14,059

Balances, June 30, 2025

$ 0 $ 302,294 $ 364,991 $ ( 35,766 ) $ 631,519

See accompanying notes to consolidated financial statements.

6 unchanged sentences

Income (Loss)

Balances, April 1, 2024

$ 0 $ 296,065 $ 293,554 $ ( 52,975 ) $ 536,644

Employee stock purchase plan ( 320 shares)

Dividend reinvestment plan ( 5,423 shares)

Stock grants to directors for retainer fees ( 11,247 shares)

Stock-based compensation expense

Cash dividends ($ 0.35 per common share)

( 5,536 ) ( 5,536 )

Net income for the three months ended June 30, 2024

18,786 18,786

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect

( 269 ) ( 269 )

Balances, June 30, 2024

$ 0 $ 297,591 $ 306,804 $ ( 53,244 ) $ 551,151

See accompanying notes to consolidated financial statements.

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

Comprehensive

Shareholders’

(Dollars in thousands except per share amounts)

Income (Loss)

Balances, January 1, 2024

6 unchanged sentences

( 11,070 ) ( 11,070 )

Net income for the three months ended March 31, 2024

Net income for the six months ended June 30, 2024

40,348 40,348

1 unchanged sentence

( 2,757 ) ( 2,757 )

Balances, March 31, 2024

Balances, June 30, 2024

$ 0 $ 297,591 $ 306,804 $ ( 53,244 ) $ 551,151

3 unchanged sentences

(Dollars in thousands)

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Cash flows from operating activities

Adjustments to reconcile net income to net cash from operating activities

Depreciation and amortization

Depreciation and amortization/accretion

Provision for credit losses

5 unchanged sentences

Net gain from sales and valuation write-downs of foreclosed assets

Net gain from sale and write-down of former bank premises

Earnings on bank owned life insurance

9 unchanged sentences

Proceeds from sales of foreclosed assets

Proceeds from sales of fomer bank premises

Proceeds from bank owned life insurance claims

5 unchanged sentences

(Dollars in thousands)

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Cash flows from financing activities

13 unchanged sentences

Cash paid during the period for:

Federal income tax

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Basis of Presentation :

The unaudited financial statements for the three months ended March 31, 2025 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries.

The unaudited financial statements for the six months ended June 30, 2025 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries.

These subsidiaries include Mercantile Community Partners, LLC ("MCP") and Mercantile Bank (“our bank”) and its subsidiaries, including Mercantile Insurance Center, Inc.

1 unchanged sentence

In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods.

The results for the period ended March 31, 2025 should not be considered as indicative of results for a full year.

The results for the period ended June 30, 2025 should not be considered as indicative of results for a full year.

For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10 -K for the year ended December 31, 2024 .

11 unchanged sentences

In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately 278,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2025 .

Approximately 327,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2024 .

Approximately 277,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2025 .

Approximately 303,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2024 .

Debt Securities :

11 unchanged sentences

Losses are charged against the allowance when the collectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

At March 31, 2025 , and December 31, 2024 , there was no allowance related to the available for sale debt securities portfolio.

At June 30, 2025 , and December 31, 2024 , there was no allowance related to the available for sale debt securities portfolio.

Interest income includes amortization of purchase premiums and accretion of discounts.

10 unchanged sentences

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Net unamortized deferred loan costs amounted to $ 2.3 million and $ 2.2 million at March 31, 2025 , and December 31, 2024 , respectively.

Net unamortized deferred loan costs amounted to $ 1.8 million and $ 2.2 million at June 30, 2025 , and December 31, 2024 , respectively.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection.

9 unchanged sentences

Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

As of March 31, 2025 and December 31, 2024 , we determined that the fair value of our mortgage loans held for sale totaled $ 15.5 million and $ 16.0 million, respectively.

As of June 30, 2025 and December 31, 2024 , we determined that the fair value of our mortgage loans held for sale totaled $ 28.1 million and $ 16.0 million, respectively.

Mortgage loans held for sale are generally sold with servicing rights retained.

40 unchanged sentences

Due to the relatively low level of loan losses during the look-back period, we have established a historical loss information factor that has been included in the qualitative factors that are included in the estimation of future credit losses in the periods presented.

We recorded a provision for credit losses of $ 2.1 million during the first three months of 2025 .

The provision for credit losses primarily reflected an increased allocation necessitated by changes to the economic forecast and loan growth.

Accrued interest receivable on loans totaling $ 17.2 million and $ 17.3 million as of March 31, 2025 and December 31, 2024 , respectively, is included in other assets on the Consolidated Balance Sheets.

We recorded a provision for credit losses of $ 3.7 million and $ 4.8 million during the six months ended June 30, 2025 and 2024 , respectively.

The provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast.

The provision expense recorded during the first six months of 2024 primarily reflected a net increase in individual allocations and allocations required by net loan growth.

Accrued interest receivable on loans totaling $ 17.2 million and $ 17.3 million as of June 30, 2025 and December 31, 2024 , respectively, is included in other assets on the Consolidated Balance Sheets.

We elected not to measure an allowance for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when loans become 90 days past due, or earlier if we believe the collection of interest is doubtful.

21 unchanged sentences

Mortgage Banking Activities :

Mortgage loans serviced for others totaled $ 1.56 billion and $ 1.55 billion as of March 31, 2025 and December 31, 2024 , respectively.

Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold and totaled $ 12.5 million as of both March 31, 2025 and December 31, 2024 .

Mortgage loans serviced for others totaled $ 1.59 billion and $ 1.55 billion as of June 30, 2025 and December 31, 2024 , respectively.

Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold and totaled $ 12.8 million and $ 12.5 million as of June 30, 2025 and December 31, 2024 , respectively.

Mortgage loan 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 revenues.

1 unchanged sentence

Any impairment of a grouping is reported as a valuation allowance.

The fair value of mortgage servicing rights totaled $ 21.6 million and $ 21.0 million as of March 31, 2025 and December 31, 2024 , respectively.

The fair value of mortgage servicing rights totaled $ 21.6 million and $ 21.0 million as of June 30, 2025 and December 31, 2024 , respectively.

Servicing fee income is recorded for fees earned for servicing mortgage loans.

9 unchanged sentences

If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

We had no derivative instruments designated as hedges as of March 31, 2025 , and December 31, 2024 .

We had no derivative instruments designated as hedges as of June 30, 2025 , and December 31, 2024 .

The acquisition method of accounting requires that assets and liabilities acquired in a business combination be recorded at fair value as of the acquisition date.

19 unchanged sentences

(Dollars in thousands)

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

Service charges on deposit and sweep accounts

1 unchanged sentence

Credit and debit card income

2,350 2,266 4,551 4,387

Interest rate swap fees

1,230 766 1,310 2,104

Payroll services income

783 686 1,823 1,582

Customer service fees

179 183 376 381

Service Charges on Deposit and Sweep Accounts:

28 unchanged sentences

Cost Gains Losses Value

March 31, 2025

June 30, 2025

Government agency debt obligations

19 unchanged sentences

$ 793,422 $ 737 $ ( 63,807 ) $ 730,352

Securities with unrealized losses at March 31, 2025 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

Securities with unrealized losses at June 30, 2025 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

Less than 12 Months

2 unchanged sentences

Value Loss Value Loss Value Loss

March 31, 2025

June 30, 2025

Government agency debt obligations

31 unchanged sentences

In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At March 31, 2025 , 799 debt securities with estimated fair values totaling $ 640 million had unrealized losses aggregating $ 53.5 million.

At June 30, 2025 , 747 debt securities with estimated fair values totaling $ 604 million had unrealized losses aggregating $ 48.2 million.

At December 31, 2024 , 843 debt securities with estimated fair values totaling $ 680 million had unrealized losses aggregating $ 63.8 million.

At March 31, 2025 , unrealized losses aggregating $ 43.4 million were attributable to bonds issued or guaranteed by agencies of the U.S.

At June 30, 2025 , unrealized losses aggregating $ 38.8 million were attributable to bonds issued or guaranteed by agencies of the U.S.

Federal Government, while unrealized losses totaling $ 9.4 million were associated with bonds issued by state-based municipalities.

6 unchanged sentences

SECURITIES (Continued)

The amortized cost and fair value of debt securities at March 31, 2025 , by maturity, are shown in the following table.

The amortized cost and fair value of debt securities at June 30, 2025 , by maturity, are shown in the following table.

The contractual maturity is utilized for U.S.

15 unchanged sentences

$ 871,687 $ 826,415

No securities were sold during the first three months of 2025 or the full-year 2024 .

Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $ 224 million and $ 219 million as of March 31, 2025 , and December 31, 2024 , respectively, with estimated market values of $ 215 million and $ 209 million at the respective dates.

We had no securities issued by all other states and their political subdivisions as of March 31, 2025 , and December 31, 2024 .

No securities were sold during the first six months of 2025 or the full-year 2024 .

Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $ 223 million and $ 219 million as of June 30, 2025 , and December 31, 2024 , respectively, with estimated market values of $ 214 million and $ 209 million at the respective dates.

We had no securities issued by all other states and their political subdivisions as of June 30, 2025 , and December 31, 2024 .

Total securities of any other specific issuer, other than the U.S.

1 unchanged sentence

The carrying value of U.S.

Government agency debt obligation securities that are pledged to secure repurchase agreements was $ 242 million and $ 122 million at March 31, 2025 , and December 31, 2024 , respectively.

Government agency debt obligation securities that are pledged to secure repurchase agreements was $ 243 million and $ 122 million at June 30, 2025 , and December 31, 2024 , respectively.

The carrying value of U.S.

Government agency debt obligation securities that are pledged to secure specific customer deposits was $ 12.1 million and $ 11.7 million at March 31, 2025 , and December 31, 2024 , respectively.

Government agency debt obligation securities that are pledged to secure specific customer deposits was $ 12.3 million and $ 11.7 million at June 30, 2025 , and December 31, 2024 , respectively.

MERCANTILE BANK CORPORATION

5 unchanged sentences

Our allowance for credit loss pools are consistent with those used for loan note disclosure purposes.

Our loan portfolio segments as of both March 31, 2025 and December 31, 2024 were as follows:

Our loan portfolio segments as of both June 30, 2025 and December 31, 2024 were as follows:

Commercial Loans

25 unchanged sentences

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Our total loans at March 31, 2025 were $ 4.64 billion compared to $ 4.60 billion at December 31, 2024 , an increase of $ 35.8 million, or 0.8 %.

The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at March 31, 2025 and December 31, 2024 , and the percentage change in loans from the end of 2024 to the end of the first quarter of 2025 , are as follows:

March 31, 2025

Our total loans at June 30, 2025 were $ 4.70 billion compared to $ 4.60 billion at December 31, 2024 , an increase of $ 97.2 million, or 2.1 %.

The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2025 and December 31, 2024 , and the percentage change in loans from the end of 2024 to the end of the second quarter of 2025 , are as follows:

June 30, 2025

December 31, 2024

21 unchanged sentences

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

An age analysis of past due loans is as follows as of March 31, 2025 :

An age analysis of past due loans is as follows as of June 30, 2025 :

30 – 59 60 – 89 Than 89

49 unchanged sentences

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Nonaccrual loans as of March 31, 2025 were as follows:

Nonaccrual loans as of June 30, 2025 were as follows:

(Dollars in thousands)

27 unchanged sentences

Nonaccrual loans represent the entire balance of collateral dependent loans.

As of March 31, 2025 and December 31, 2024 , all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment.

Interest income recognized on nonaccrual loans totaled $ 0.3 million and $ 0.2 million during the three months ended March 31, 2025 and 2024 , respectively, reflecting the collection of interest at the time of principal pay-off.

As of June 30, 2025 and December 31, 2024 , all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment.

Interest income recognized on nonaccrual loans totaled $ 0.3 million and $ 0.4 million during the six months ended June 30, 2025 and 2024 , respectively, reflecting the collection of interest at the time of principal pay-off.

MERCANTILE BANK CORPORATION

64 unchanged sentences

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The following table reflects amortized cost basis of loans and year-to-date loan charge-offs as of March 31, 2025 based on year of origination:

The following table reflects amortized cost basis of loans as of June 30, 2025 and loan charge-offs during the six months ended June 30, 2025 based on year of origination:

(Dollars in thousands)

59 unchanged sentences

$ 0 $ 6 $ 2 $ 22 $ 61 $ 3 $ 94 $ 7 $ 101

There were lines of credit with principal balances of $ 0.3 million that were converted to term loans during the first three months of 2025 .

There were lines of credit with principal balances of $ 0.6 million that were converted to term loans during the first six months of 2025 .

MERCANTILE BANK CORPORATION

1 unchanged sentence

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The following table reflects amortized cost basis of loans as of December 31, 2024 and loan charge-offs during the three months ended March 31, 2024 based on year of origination:

The following table reflects amortized cost basis of loans as of December 31, 2024 and loan charge-offs during the six months ended June 30, 2024 based on year of origination:

(Dollars in thousands)

66 unchanged sentences

The look-back period represents the number of data periods that will be used to calculate a baseline loss rate for each loan portfolio segment.

We determined that the look-back period commencing on January 1, 2011 through the current reporting date was reasonable and appropriate, which was used in the calculation of both the March 31, 2025 , and December 31, 2024 allowance for credit losses.

We determined that the look-back period commencing on January 1, 2011 through the current reporting date was reasonable and appropriate, which was used in the calculation of both the June 30, 2025 , and December 31, 2024 allowance for credit losses.

Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss.

Our prepayment speed assumptions are developed at the loan segment level based upon the consideration of all relevant data which we believe could impact anticipated customer behavior, including changes in interest rates, economic conditions, and underlying property valuations.

For the commercial portfolio segments, we assumed a 2.0 % prepayment speed as of both March 31, 2025 and December 31, 2024 as we deemed there to be no considerable changes from historical experience.

For the retail 1 - 4 family mortgage and retail other consumer portfolios, we used a prepayment speed of 7.8 % as of March 31, 2025 and December 31, 2024 .

For the commercial portfolio segments, we assumed a 2.0 % prepayment speed as of both June 30, 2025 and December 31, 2024 as we deemed there to be no considerable changes from historical experience.

For the retail 1 - 4 family mortgage and retail other consumer portfolios, we used a prepayment speed of 7.8 % as of June 30, 2025 and December 31, 2024 .

During each reporting period, we also consider the need to adjust the historical loss rates as determined to reflect the extent to which we expect current conditions and reasonable and supportable economic forecasts to differ from the conditions that existed for the period over which the historical loss information was determined.

These qualitative adjustments may increase or decrease our estimate of expected future credit losses.

As of March 31, 2025 and December 31, 2024 , we used a one -year reasonable and supportable economic forecast period, with a six -month straight-line reversion period for all loan segments.

The economic forecasts used for our March 31, 2025 allowance calculation reflected less than a $ 0.1 million allowance balance reduction.

As of June 30, 2025 and December 31, 2024 , we used a one -year reasonable and supportable economic forecast period, with a six -month straight-line reversion period for all loan segments.

The economic forecasts used for our June 30, 2025 allowance calculation reflected a $ 0.1 million allowance balance reduction.

The forecasts used for our December 31, 2024 allowance calculation reflected a $ 2.2 million allowance balance reduction.

Individual loans exhibiting unique risk characteristics, which differentiated the loans from other loans within the loan segments and were evaluated for expected credit losses on an individual basis, totaled $ 7.0 million and $ 7.4 million as of March 31, 2025 and December 31, 2024 , respectively.

Individual allowance allocations totaled $ 2.4 million and $ 2.2 million as of March 31, 2025 and December 31, 2024 , respectively.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Activity in the allowance for credit losses during the three months ended March 31, 2025 is as follows:

Individual loans exhibiting unique risk characteristics, which differentiated the loans from other loans within the loan segments and were evaluated for expected credit losses on an individual basis, totaled $ 11.2 million and $ 7.4 million as of June 30, 2025 and December 31, 2024 , respectively.

Individual allowance allocations totaled $ 3.9 million and $ 2.2 million as of June 30, 2025 and December 31, 2024 , respectively.

Activity in the allowance for credit losses during the three and six months ended June 30, 2025 is as follows:

(Dollars in thousands)

9 unchanged sentences

$ 11,771 $ 387 $ 7,691 $ 13,800 $ 4,297 $ 17,965 $ 2,321 $ 143 $ 58,375

Activity in the allowance for credit losses during the three months ended March 31, 2024 is as follows:

Balance at 12-31-24

$ 11,165 $ 367 $ 7,671 $ 10,919 $ 3,667 $ 18,702 $ 1,936 $ 27 $ 54,454

Provision for credit losses

559 18 17 2,881 622 ( 803 ) 290 116 3,700

( 11 ) 0 0 0 0 ( 86 ) ( 4 ) 0 ( 101 )

58 2 3 0 8 152 99 0 322

Ending balance

$ 11,771 $ 387 $ 7,691 $ 13,800 $ 4,297 $ 17,965 $ 2,321 $ 143 $ 58,375

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Activity in the allowance for credit losses during the three and six months ended June 30, 2024 is as follows:

(Dollars in thousands)

14 unchanged sentences

$ 13,215 $ 393 $ 7,190 $ 10,249 $ 3,589 $ 18,513 $ 2,250 $ 9 $ 55,408

Balance at 12-31-23

$ 7,441 $ 384 $ 7,186 $ 9,852 $ 3,184 $ 18,986 $ 2,881 $ 0 $ 49,914

Provision for credit losses

5,476 6 ( 155 ) 397 397 ( 569 ) ( 761 ) 9 4,800

( 6 ) 0 0 0 0 0 ( 35 ) 0 ( 41 )

304 3 159 0 8 96 165 0 735

Ending balance

$ 13,215 $ 393 $ 7,190 $ 10,249 $ 3,589 $ 18,513 $ 2,250 $ 9 $ 55,408

There were no loan modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2025.

The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the three months ended June 30, 2025 :

Interest Rate

(Dollars in thousands)

Term Extension

Commercial and industrial

Vacant land, land development and residential construction

Real estate – owner occupied

Real estate – non-owner occupied

Real estate – multi-family and residential rental

Total commercial

1-4 family mortgages

Other consumer loans

MERCANTILE BANK CORPORATION

1 unchanged sentence

LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

There were no loan modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2025.

Interest Rate

12 unchanged sentences

$ 0 $ 1,818 $ 0

The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the six months ended June 30, 2024 :

Interest Rate

(Dollars in thousands)

Term Extension

Commercial and industrial

$ 0 $ 2,318 $ 0

Vacant land, land development and residential construction

Real estate – owner occupied

Real estate – non-owner occupied

Real estate – multi-family and residential rental

Total commercial

$ 0 $ 2,318 $ 0

1-4 family mortgages

Other consumer loans

$ 0 $ 2,318 $ 0

Loans listed under Term Extension were generally granted a series of short-term maturity extensions as part of the workout process and associated forbearance agreements.

The following table presents the amortized cost basis of loans that have been modified in the past twelve months to borrowers experiencing financial difficulty by payment status and loan segment as of March 31, 2025 :

(Dollars in thousands)

26 unchanged sentences

$ 54,792 $ 53,427

Depreciation expense totaled $ 1.3 million and $ 1.6 million during the first quarters of 2025 and 2024 , respectively.

Depreciation expense totaled $ 1.3 million and $ 1.5 million during the second quarters of 2025 and 2024 , respectively.

We enter into facility leases in the normal course of business.

As of March 31, 2025 , we were under lease contracts for eleven of our banking facilities.

The leases have maturity dates ranging from November, 2025 through May, 2048, with a weighted average life of 9.3 years as of March 31, 2025 .

As of June 30, 2025 , we were under lease contracts for eleven of our banking facilities.

The leases have maturity dates ranging from November, 2025 through May, 2048, with a weighted average life of 9.3 years as of June 30, 2025 .

All of our leases have multiple three - to five -year extensions;

5 unchanged sentences

We use our incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments.

The weighted average discount rate for leases was 6.53 % as of March 31, 2025 .

The right-of-use assets, included in premises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included in other liabilities on our Consolidated Balance Sheets, totaled $ 4.5 million and $ 4.4 million as of March 31, 2025 , and December 31, 2024 , respectively.

The weighted average discount rate for leases was 6.53 % as of June 30, 2025 .

The right-of-use assets, included in premises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included in other liabilities on our Consolidated Balance Sheets, totaled $ 4.2 million and $ 4.4 million as of June 30, 2025 , and December 31, 2024 , respectively.

As permitted by applicable accounting standards, we have elected not to recognize short-term leases with original terms of twelve months or less on our Consolidated Balance Sheets.

Total operating lease expense associated with the leases aggregated $ 0.3 million during the first quarter of 2025 and $ 0.4 million during the first quarter of 2024 .

Total operating lease expense associated with the leases aggregated $ 0.3 million during the second quarter of 2025 and $ 0.4 million during the second quarter of 2024 .

MERCANTILE BANK CORPORATION

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PREMISES AND EQUIPMENT, NET (Continued)

Future lease payments were as follows as of March 31, 2025 :

Future lease payments were as follows as of June 30, 2025 :

(Dollars in thousands)

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Present value of future lease payments (lease liability)

Our total deposits at March 31, 2025 totaled $ 4.68 billion, a decrease of $ 16.6 million, or 0.4 %, from December 31, 2024 .

The components of our outstanding balances at March 31, 2025 and December 31, 2024 , and percentage change in deposits from the end of 2024 to the end of the first quarter of 2025 , are as follows:

March 31, 2025

Our total deposits at June 30, 2025 were $ 4.71 billion, an increase of $ 12.1 million, or 0.3 %, from December 31, 2024 .

The components of our outstanding balances at June 30, 2025 and December 31, 2024 , and percentage change in deposits from the end of 2024 to the end of the second quarter of 2025 , are as follows:

June 30, 2025

December 31, 2024

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Information relating to our repurchase agreements is as follows:

Three Months Ended

Six Months Ended

Twelve Months Ended

(Dollars in thousands)

March 31, 2025

June 30, 2025

December 31, 2024

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FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

FHLBI bullet advances totaled $ 340 million at March 31, 2025 , and were scheduled to mature at varying dates from April 2025 through January 2029 , with fixed rates of interest from 0.70 % to 4.54 % and averaging 3.18 %.

FHLBI bullet advances totaled $ 360 million at December 31, 2024 , and were scheduled to mature at varying dates from January 2025 through January 2029 , with fixed rates of interest from 0.70 % to 4.54 % and averaging 3.10 %.

Maturities of FHLBI bullet advances as of March 31, 2025 were as follows:

FHLBI bullet advances totaled $ 330 million at June 30, 2025 , and were scheduled to mature at varying dates from September 2025 through June 2030 , with fixed rates of interest from 0.82 % to 4.50 % and averaging 3.25 %.

FHLBI bullet advances totaled $ 360 million at December 31, 2024 , and were scheduled to mature at varying dates from January 2025 through June 2030 , with fixed rates of interest from 0.70 % to 4.54 % and averaging 3.10 %.

Maturities of FHLBI bullet advances as of June 30, 2025 were as follows:

(Dollars in thousands)

FHLBI amortizing advances totaled $ 26.2 million as of March 31, 2025 , with an average rate of 2.52 % and with final maturities in 2042 .

FHLBI amortizing advances totaled $ 26.2 million as of June 30, 2025 , with an average rate of 2.52 % and with final maturities in 2042 .

FHLBI amortizing advances totaled $ 27.1 million as of December 31, 2024 , with an average rate of 2.52 % and with final maturities in 2042 .

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FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES (Continued)

Scheduled principal payments on FHLBI amortizing advances as of March 31, 2025 were as follows:

Scheduled principal payments on FHLBI amortizing advances as of June 30, 2025 were as follows:

(Dollars in thousands)

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The 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 as of March 31, 2025 totaled $ 1.06 billion, with remaining availability based on collateral of $ 674 million.

Our borrowing line of credit as of June 30, 2025 totaled $ 1.06 billion, with remaining availability based on collateral of $ 698 million.

STOCK-BASED COMPENSATION

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$ 1.6 million during the

three months ended March 31, 2025 and 2024 , respectively.

six months ended June 30, 2025 and 2024 , respectively.

The Stock Incentive Plan of

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no restricted stock grants during the

three months ended

March 31, 2024.

A summary of restricted stock activity during the three months ended March 31, 2025 , is as follows:

six months ended June 30, 2024 .

A summary of restricted stock activity during the six months ended June 30, 2025 , is as follows:

Nonvested at beginning of the period

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( 2,030 ) 40.96

( 845 ) 34.42

Nonvested at end of the period

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STOCK-BASED COMPENSATION (Continued)

Of the restricted stock shares granted during the three months ended March 31, 2024 , 24,910 shares are performance-based awards made to our Named Executive Officers at the target level and are subject to the attainment of pre-determined performance goals.

As of March 31, 2025 , there were approximately 298,000 shares authorized for future incentive awards, and as of December 31, 2024 , there were approximately 383,000 shares authorized for future incentive awards.

Of the restricted stock shares granted during the six months ended June 30, 2025 , 24,910 shares are performance-based awards made to our Named Executive Officers at the target level and are subject to the attainment of pre-determined performance goals.

As of June 30, 2025 , there were approximately 290,000 shares authorized for future incentive awards, and as of December 31, 2024 , there were approximately 383,000 shares authorized for future incentive awards.

We periodically grant shares of common stock to our Corporate and Bank Board Directors for retainer payments with the related expense being recorded over the period of the Directors' service, as summarized below:

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June 1, 2024 - May 31, 2025

June 1, 2025 - May 31, 2026

In March 2025, the Company adopted the 2025 Employee Stock Purchase Plan ("ESPP"), offering a 5 % discount on the market price of the Company's common stock.

The ESPP was approved by the Company's shareholders on May 22, 2025.

The Company reserved 200,000 shares of common stock for future issuance under the ESPP, subject to adjustment.

All present and future active and full time employees of the Company or its subsidiaries are eligible to participate in the ESPP other than temporary employees, interns, and officers subject to Section 16 of the Securities and Exchange Act of 1934, as amended.

Eligible employees can purchase shares on each quarterly purchase date through payroll deductions of not less than $ 5 nor more than $ 200 .

The purchase price will be the lower of 95 % of the fair market value of the Company's stock at the commencement of the offering period or the fair market value of a share of common stock on the stock purchase date.

Each offering period spans three months, with the first offering period beginning on July 1, 2025.

As of June 30, 2025, 200,000 shares were reserved for future issuance under the ESPP.

COMMITMENTS AND OFF-BALANCE SHEET RISK

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For commitments to make loans, we determine an allowance by applying the expected loss allocation factor to the amount expected to be funded.

The calculated allowance aggregated $ 0.3 million and $ 1.0 million as of March 31, 2025 and December 31, 2024 , respectively.

The calculated allowance aggregated $ 0.9 million and $ 1.0 million as of June 30, 2025 and December 31, 2024 , respectively.

We do not reserve for residential mortgage construction loans, as the loans are for one year or less and draws are governed by the receipt and satisfactory review of contractor and subcontractor sworn statements, lien waivers and title insurance company endorsements.

Letters of credit are rarely drawn.

At March 31, 2025 , and December 31, 2024 , the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties.

MERCANTILE BANK CORPORATION

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COMMITMENTS AND OFF-BALANCE SHEET RISK (Continued)

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at March 31, 2025 and December 31, 2024 is as follows:

At June 30, 2025 , and December 31, 2024 , the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at June 30, 2025 and December 31, 2024 is as follows:

(Dollars in thousands)

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Fees paid to us by the correspondent banks are recognized as noninterest income on our Consolidated Statements of Income on the settlement date.

The fair values of derivative instruments as of March 31, 2025 , are reflected in the following table.

The fair values of derivative instruments as of June 30, 2025 , are reflected in the following table.

Balance Sheet

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DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $ 0.1 million during the three months ended March 31, 2025 that was recorded in other noninterest expense on our Consolidated Statements of Income.

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $ 0.2 million during the six months ended June 30, 2025 that was recorded in other noninterest expense on our Consolidated Statements of Income.

We have master netting arrangements with our correspondent banks that allow us to net receivables and payables.

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We have elected to not offset these transactions on the Consolidated Balance Sheets.

The netting of derivative instruments as of March 31, 2025 is presented in the following table.

The netting of derivative instruments as of June 30, 2025 is presented in the following table.

Gross Amounts Not Offset on the Consolidated Balance Sheet

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864,130 Other Liabilities

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $ 0.1 million during the three months ended March 31, 2024 that was recorded in other noninterest expense on our Consolidated Statements of Income.

The effect of interest rate swaps that are not designated as hedging instruments resulted in income of $ 0.1 million during the six months ended June 30, 2024 that was recorded in other noninterest expense on our Consolidated Statements of Income.

The netting of derivative instruments as of December 31, 2024 is presented in the following table.

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FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of March 31, 2025 and December 31, 2024 :

March 31, 2025

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of June 30, 2025 and December 31, 2024 :

June 30, 2025

December 31, 2024

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We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information that becomes known to us necessitates an impairment.

There was no such impairment as of March 31, 2025 , or December 31, 2024 .

There was no such impairment as of June 30, 2025 , or December 31, 2024 .

We have no Level 1 securities available for sale.

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Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics.

As of March 31, 2025 and December 31, 2024 , we determined the fair value of our mortgage loans held for sale to be $ 15.5 million and $ 16.0 million, respectively.

As of June 30, 2025 and December 31, 2024 , we determined the fair value of our mortgage loans held for sale to be $ 28.1 million and $ 16.0 million, respectively.

We do not record loans at fair value on a recurring basis.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 are as follows:

The balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2025 are as follows:

(Dollars in thousands)

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$ 26,401 $ 0 $ 26,401 $ 0

There were no sales, purchases or transfers in or out of Level 3 during the six months ended June 30, 2025 .

The insignificant reduction in Level 3 municipal general obligation bonds during the six months ended June 30, 2025 reflects the scheduled maturities of such bonds.

MERCANTILE BANK CORPORATION

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FAIR VALUES (Continued)

There were no sales, purchases or transfers in or out of Level 3 during the three months ended March 31, 2025 .

The insignificant reduction in Level 3 municipal general obligation bonds during the three months ended March 31, 2025 reflects the scheduled maturities of such bonds.

The balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 are as follows:

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2025 are as follows:

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2025 are as follows:

(Dollars in thousands)

2 unchanged sentences

$ 4,523 $ 0 $ 0 $ 4,523

$ 1,642 $ 0 $ 0 $ 1,642

MERCANTILE BANK CORPORATION

6 unchanged sentences

$ 2,173 $ 0 $ 0 $ 2,173

The carrying values are based on the estimated value of the property or other assets.

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In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator.

As of March 31, 2025 and December 31, 2024 , our bank was in the well capitalized category under the regulatory framework for prompt corrective action.

There are no conditions or events since March 31, 2025 , that we believe have changed our bank’s categorization.

As of June 30, 2025 and December 31, 2024 , our bank was in the well capitalized category under the regulatory framework for prompt corrective action.

There are no conditions or events since June 30, 2025 , that we believe have changed our bank’s categorization.

MERCANTILE BANK CORPORATION

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(Dollars in thousands)

March 31, 2025

June 30, 2025

Total capital (to risk weighted assets)

$ 794,143 14.4 % $ 439,924 8.0 % $ NA

$ 814,796 14.4 % $ 453,646 8.0 % $ NA NA%

779,255 13.9 449,180 8.0 561,475 10.0

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Total capital (to risk weighted assets)

$ 777,857 14.2 % $ 439,031 8.0 % $ NA

$ 777,857 14.2 % $ 439,031 8.0 % $ NA NA%

759,146 13.9 435,793 8.0 544,741 10.0

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REGULATORY MATTERS (Continued)

Our consolidated capital levels as of both March 31, 2025 and December 31, 2024 include $ 48.3 million of trust preferred securities.

Our consolidated capital levels as of both June 30, 2025 and December 31, 2024 include $ 48.3 million of trust preferred securities.

Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element.

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Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009 were less than $ 15.0 billion.

As of both March 31, 2025 and December 31, 2024 , all $ 48.3 million of the trust preferred securities were included in our consolidated Tier 1 capital.

As of both June 30, 2025 and December 31, 2024 , all $ 48.3 million of the trust preferred securities were included in our consolidated Tier 1 capital.

Under the final BASEL III capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5 % of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule.

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The capital buffer requirement raised the minimum required common equity Tier 1 capital ratio to 7.0 %, the Tier 1 capital ratio to 8.5 % and the total capital ratio to 10.5 % on a fully phased-in basis on January 1, 2019.

We believe that, as of March 31, 2025 , our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

We believe that, as of June 30, 2025 , our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices.

On January 16, 2025 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.37 per share that was paid on March 19, 2025 , to shareholders of record as of March 7, 2025 .

As of March 31, 2025 , we had the ability to repurchase up to $ 6.8 million in common stock shares from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations as part of a $ 20.0 million common stock repurchase program announced in May 2021.

No shares were repurchased during the first three months of 2025 .

On April 17, 2025 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.37 per share that was paid on June 18, 2025 , to shareholders of record as of June 6, 2025 .

As of June 30, 2025 , we had the ability to repurchase up to $ 6.8 million in common stock shares from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations as part of a $ 20.0 million common stock repurchase program announced in May 2021.

No shares were repurchased during the first six months of 2025 .

Historically, stock repurchases have been funded from cash dividends paid to us from our bank.

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SUBSEQUENT EVENTS

On April 17, 2025 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.37 per share that will be paid on June 18, 2025 , to shareholders of record as of June 6, 2025 .

On July 17, 2025 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.38 per share that will be paid on September 17, 2025 , to shareholders of record as of September 5, 2025 .

On July 22, 2025, we entered into a definitive merger agreement ("Merger Agreement") with Eastern Michigan Financial Corporation (“EFIN”), pursuant to which EFIN will merge with and into an acquisition subsidiary of Mercantile, with the acquisition subsidiary as the surviving corporation (the “Merger”).

Following the Merger, Mercantile will operate for a period of time as a two -bank holding company.

The newly acquired Eastern Michigan Bank will operate alongside Mercantile’s existing bank, Mercantile Bank, until the first quarter of 2027 at which time Mercantile plans to consolidate Eastern Michigan Bank into Mercantile Bank.

Under the terms of the agreement, each outstanding share of EFIN’s common stock will be converted into the right to receive $ 32.32 in cash and 0.7116 shares of Mercantile common stock, for an aggregate transaction value of approximately $ 95.8 million based upon the closing price of Mercantile's common stock of $ 48.75 on July 21, 2025.

The Merger Agreement has been approved by the boards of directors of each of Mercantile and EFIN.

The parties anticipate that the Merger will close in the fourth quarter of 2025, subject to receiving approval of the Merger Agreement by EFIN’s shareholders and applicable regulatory agencies, and the fulfillment of other customary closing conditions.

MERCANTILE BANK CORPORATION

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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, adverse changes in interest rates and interest rate relationships;

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;

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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 March 31, 2025 and December 31, 2024 and the results of operations for the three months ended March 31, 2025 and 2024.

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.

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Financial Overview

We reported net income of $19.5 million, or $1.21 per diluted share, for the first quarter of 2025, compared with net income of $21.6 million, or $1.34 per diluted share, during the first quarter of 2024.

Although net interest income increased, net income was negatively impacted by lower noninterest income, increased noninterest costs and a higher provision expense.

Commercial loans increased $44.3 million during the first three months of 2025, providing for an annualized growth rate of about 5%.

Non-owner occupied commercial real estate (“CRE”) loans grew $55.3 million, commercial and industrial loans increased $27.1 million, multi-family and residential rental property loans were up $3.2 million and land development and construction loans expanded by $1.9 million, while owner occupied CRE loans declined $43.2 million.

As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 53.8% as of March 31, 2025, compared to 54.9% as of December 31, 2024.

While the “in discussion” segment of our commercial loan pipeline remains strong, the “committed and accepted” segment is relatively low, the latter generally reflecting customer reaction to the uncertain economic environment associated with United States tariff changes and negotiations.

As of March 31, 2025, we had $210 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $10.4 million during the first three months of 2025, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the first quarter.

Residential mortgage loan originations totaled $100 million during the first three 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 only 0.12% of total loans as of March 31, 2025.

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 three months of 2025, while recoveries of prior period loan charge-offs aggregated $0.2 million, providing for a net loan recovery of $0.1 million.

We recorded a provision expense of $2.1 million during the first three months of 2025, primarily reflecting an increased allocation necessitated by changes to the economic forecast and loan growth.

MERCANTILE BANK CORPORATION

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $267 million during the first three months of 2025, compared to $150 million during the first three months of 2024.

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 declined $16.6 million during the first three months of 2025.

Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing checking accounts primarily reflecting the customary level of customers’ tax and bonus payments and partnership distributions during the early part of each first quarter.

Securities sold under agreements to repurchase (“sweep accounts”) increased $121 million during the first quarter 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 $20.9 million during the first three months of 2025.

Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $516 million, or about 10% of total funds, as of March 31, 2025.

Net interest income increased $1.2 million during the first three months of 2025 compared to the first quarter of 2024, reflecting the net impact of $3.6 million and $2.4 million increases in interest income and interest expense, respectively.

Our net interest margin during the first quarter of 2025 was 27 basis points lower than during the first quarter of 2024.

Our yield on earning assets declined 32 basis points while our cost of funds was down 5 basis points during that time period.

MERCANTILE BANK CORPORATION

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 significant loan growth between the first quarters of 2024 and 2025.

Total loans averaged $4.63 billion and $4.30 billion during the first quarters of 2025 and 2024, respectively, reflecting growth of $330 million, or about 8%.

Noninterest income totaled $8.7 million during the first three months of 2025, compared to $10.9 million during the first quarter of 2024.

Growth in treasury management fees, mortgage banking income and payroll service fees was more than offset by lower levels of interest rate swap income, revenue generated from a private equity fund investment and bank owned life insurance income.

Noninterest expense totaled $31.1 million during the first three months of 2025, compared to $29.9 million during the first quarter of 2024.

The higher level of noninterest expense primarily resulted from increased compensation and benefit costs along with higher data processing expenses.

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.

MERCANTILE BANK CORPORATION

Financial Condition

Our total assets increased $89.0 million during the first three months of 2025, and totaled $6.14 billion as of March 31, 2025.

Securities available for sale grew $57.2 million and total loans increased $35.8 million, while interest-earning deposits declined $20.9 million during the first quarter of 2025.

Sweep accounts grew $121 million, while total deposits declined $16.6 million and FHLBI advances decreased $20.9 million during the first three months of 2025.

Commercial loans totaled $3.75 billion, or 80.9% of total loans, as of March 31, 2025.

Commercial loans increased $44.3 million during the first three months of 2025, providing for an annualized growth rate of about 5%.

Non-owner occupied CRE loans grew $55.3 million, commercial and industrial loans increased $27.1 million, multi-family and residential rental property loans were up $3.2 million and land development and construction loans expanded by $1.9 million, while owner occupied CRE loans declined $43.2 million.

As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 53.8% as of March 31, 2025, compared to 54.9% as of December 31, 2024.

As of March 31, 2025, we had $210 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase, which we expect to be drawn over the next 12 to 18 months.

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%.

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 three months of 2025, compared to approximately 42% during all of 2024.

Residential mortgage loans totaled $817 million, or 17.6% of total loans, as of March 31, 2025.

Residential mortgage loan originations totaled $100 million during the first three months of 2025, of which about 80% were originated with the intent to sell.

Other consumer-related loans totaled $67.7 million, or 1.5% of total loans, as of March 31, 2025, compared to $65.9 million, or 1.4% of total loans, as of December 31, 2024.

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.

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In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming assets, comprised of nonaccrual loans, loans past due 90 days or more and accruing interest and foreclosed properties, totaled $5.4 million (0.1% of total assets) as of March 31, 2025, compared to $5.7 million (0.1% of total assets) as of December 31, 2024.

The volume of nonperforming assets has remained under 0.3% of total assets since year-end 2015.

Given the low levels of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

Loan charge-offs totaled $0.1 million, while recoveries of prior period loan charge-offs equaled $0.2 million, providing for a net loan recovery of $0.1 million during the first three months of 2025.

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.

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 a provision expense of $2.1 million during the first three months of 2025, primarily reflecting an increased allocation necessitated by 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.

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MERCANTILE BANK CORPORATION

The allowance equaled $56.7 million, or 1.22% of total loans and 1,057% of nonperforming loans, as of March 31, 2025.

The allowance was comprised of $54.3 million in general reserves relating to performing loans and $2.4 million in specific reserves on other loans, primarily nonperforming loans, as of March 31, 2025.

Loans with an aggregate carrying value of $0.3 million as of March 31, 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 March 31, 2025.

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 three months ended March 31, 2025.

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)

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MERCANTILE BANK CORPORATION

Securities available for sale increased $57.2 million during the first three months of 2025, totaling $788 million as of March 31, 2025.

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 three months of 2025 aggregated $46.0 million, while proceeds from maturities totaled $6.0 million.

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 three months of 2025, while proceeds from principal paydowns aggregated $0.8 million.

Purchases of municipal bonds totaled $5.7 million during the first three months of 2025;

there were no maturities.

As of March 31, 2025, the portfolio was primarily comprised 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.

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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 March 31, 2025, totaled $788 million, including a net unrealized loss of $51.5 million.

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.

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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 March 31, 2025, unchanged from December 31, 2024.

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.

Net premises and equipment equaled $53.7 million as of March 31, 2025, compared to $53.4 million as of December 31, 2024.

Depreciation expense totaled $1.3 million during the first three months of 2025, while investments associated with renovations of existing facilities and equipment purchases aggregated $1.6 million.

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.

MERCANTILE BANK CORPORATION

Total deposits declined $16.6 million during the first three months of 2025.

Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing checking accounts primarily reflecting the expected large withdrawal of funds that had been deposited in late 2024 and the customary level of customers’ tax and bonus payments and partnership distributions during the early part of each first quarter.

Out-of-area deposits were unchanged, while FHLBI advances declined $20.9 million during the first three months of 2025.

Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $516 million, or about 10% of total funds, as of March 31, 2025.

Uninsured deposits totaled approximately $2.5 billion, or about 53% of total deposits, as of March 31, 2025, compared to approximately $2.2 billion, or 46% of total deposits, as of December 31, 2024.

Total deposits increased $12.1 million during the first six months of 2025.

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.

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 quarter of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 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 $221 million during the first three months of 2025, with a high daily balance of $284 million and a low daily balance of $115 million.

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.

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All of our repurchase agreements are accounted for as secured borrowings.

FHLBI advances declined $20.9 million during the first three months of 2025, totaling $366 million as of March 31, 2025.

Bullet advance maturities aggregated $20.0 million, while no new bullet advances were obtained, during the first three months of 2025.

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.

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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 $674 million, as of March 31, 2025.

Shareholders’ equity increased $23.8 million during the first three months of 2025, equaling $608 million as of March 31, 2025.

Positively impacting shareholders’ equity during the first three months of 2025 was net income of $19.5 million, which was partially offset by the payment of cash dividends totaling $5.9 million.

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 $9.2 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 three months of 2025.

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.

MERCANTILE BANK CORPORATION

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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 $516 million, or about 10% of total funds, as of March 31, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Sweep accounts increased $121 million during the first quarter of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 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.

The average balance of sweep accounts equaled $221 million during the first three months of 2025, with a high daily balance of $284 million and a low daily balance of $115 million.

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.

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All of our repurchase agreements are accounted for as secured borrowings.

Information regarding our repurchase agreements as of March 31, 2025 and during the first three months of 2025 is as follows:

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 March 31, 2025

Weighted average interest rate at March 31, 2025

Maximum daily balance three months ended March 31, 2025

Average daily balance for three months ended March 31, 2025

Weighted average interest rate for three months ended March 31, 2025

FHLBI advances declined $20.9 million during the first three months of 2025, totaling $366 million as of March 31, 2025.

Bullet advance maturities aggregated $20.0 million, while no new bullet advances were obtained, during the first three months of 2025.

Outstanding balance at June 30, 2025

Weighted average interest rate at June 30, 2025

Maximum daily balance six months ended June 30, 2025

Average daily balance for six months ended June 30, 2025

Weighted average interest rate for six months ended June 30, 2025

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.

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Our borrowing line of credit totaled $1.06 billion, with remaining availability based on collateral equaling $674 million, as of March 31, 2025.

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 did not access these lines of credit during the first three months of 2025.

In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $248 million during the first three months of 2025.

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 March 31, 2025.

We did not utilize this line of credit during the first three 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.

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.

MERCANTILE BANK CORPORATION

The following table reflects, as of March 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

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)

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Premises and equipment leases

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

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)

March 31, 2025

June 30, 2025

December 31, 2024

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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 March 31, 2025, we had a total of $2.01 billion in unfunded loan commitments and $27.2 million in unfunded 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.

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Capital Resources

Shareholders’ equity increased $23.8 million during the first three months of 2025, equaling $608 million as of March 31, 2025.

Positively impacting shareholders’ equity during the first three months of 2025 was net income of $19.5 million, which was partially offset by the payment of cash dividends totaling $5.9 million.

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.

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 March 31, 2025, our bank’s total risk-based capital ratio was 14.0%, compared to 13.9% as of December 31, 2024.

Our bank’s total regulatory capital increased $3.0 million during the first three months of 2025, in large part reflecting net income totaling $22.3 million, which was partially offset by cash dividends paid to us aggregating $20.8 million.

As of March 31, 2025, our bank’s total regulatory capital equaled $762 million, or $217 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 March 31, 2025 and December 31, 2024 are disclosed in Note 13 of the Notes to Consolidated 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.

MERCANTILE BANK CORPORATION

Results of Operations

We recorded net income of $19.5 million, or $1.21 per basic and diluted share, for the first quarter of 2025, compared with net income of $21.6 million, or $1.34 per basic and diluted share, for the first quarter of 2024.

Diluted earnings per share decreased $0.13, or 9.7%, during the first quarter of 2025, compared with the prior-year first quarter.

The decrease in net income during the first three months of 2025 compared to the respective 2024 period reflected lower noninterest income and higher levels of noninterest expense and provisions for credit losses, which more than offset increased net interest income.

Net interest income increased as earning asset expansion and a decrease in the cost of funds outpaced a lower yield on earning assets and growth in interest-bearing liabilities.

Noninterest income declined as increases in treasury management fees, mortgage banking income, and payroll service fees were outweighed by reductions in interest rate swap income, revenue generated from an investment in a private equity fund, and bank owned life insurance income.

Noninterest expense was up primarily due to increased salary and benefit and data processing costs.

The provision expense recorded during the current-year first quarter mainly reflected an increased allocation necessitated by changes to the economic forecast.

Interest income during the first quarter of 2025 was $80.3 million, an increase of $3.6 million, or 4.7%, from the $76.7 million earned during the first quarter of 2024.

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 $5.68 billion during the first quarter of 2025, up $597 million, or 11.7%, from the level of $5.08 billion during the prior-year first quarter; average loans were up $330 million, average securities increased $150 million, and average interest-earning deposits grew $117 million.

The yield on average earning assets was 5.74% during the current-year first quarter, a decrease from 6.06% during the respective 2024 period.

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 6.31% during the first quarter of 2025, down from 6.65% during the first 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 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.

Signifying the success of a strategic initiative to reduce the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans represented a reduced percentage of earning assets and lower-yielding securities and interest-earning deposits accounted for increased percentages of earning assets in the first quarter of 2025 compared to the first quarter of 2024.

The yield on securities equaled 2.79% during the first three months of 2025, up from 2.20% during the first three months of 2024.

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.

MERCANTILE BANK CORPORATION

Interest expense during the first quarter of 2025 was $31.8 million, an increase of $2.4 million, or 8.3%, from the $29.4 million expensed during the first quarter of 2024.

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 $4.18 billion during the first three months of 2025, compared to $3.61 billion during the respective 2024 period, representing an increase of $575 million, or 15.9%.

The average weighted cost of interest-bearing liabilities declined from 3.27% during the first quarter of 2024 to 3.08% during the first quarter of 2025 mainly due to lower rates paid on money market accounts, 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 a decrease in average noninterest-bearing checking accounts and growth in average higher-cost money market accounts and time deposits, negatively impacted the weighted average cost of interest-bearing liabilities during the first three months of 2025.

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.

Net interest income during the first quarter of 2025 was $48.5 million, an increase of $1.2 million, or 2.5%, from the $47.3 million earned during the respective 2024 period.

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 3.47% in the first quarter of 2025, down from 3.74% in the prior-year first quarter due to a decreased yield on earning assets, which more than offset a decline in the cost of funds.

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 2.27% in the first quarter of 2025, down from 2.32% in the first quarter of 2024 primarily due to lower costs of money market accounts, reflecting the decreasing interest rate environment over the last four months of 2024.

The following table sets forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the first quarters of 2025 and 2024.

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 first quarters 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 $60,000 in the first quarters of 2025 and 2024 for this non-GAAP, but industry standard, adjustment.

These adjustments equated to increases in our net interest margin of less than one basis point for both periods.

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

Quarters ended March 31,

Quarters ended June 30,

(dollars in thousands)

Investment securities

Interest-earning deposits

Interest-earning assets

Total interest - earning assets

15 unchanged sentences

MERCANTILE BANK CORPORATION

Provisions for credit losses of $2.1 million and $1.3 million were recorded during the first quarters of 2025 and 2024, respectively.

The provision expense recorded during the first three months of 2025 mainly reflected an increased allocation dictated by changes to the economic forecast.

The provision expense recorded during the first three months of 2024 primarily reflected an individual allocation for a nonperforming commercial loan relationship, allocations necessitated by net loan growth, and a change in a commercial loan environmental factor, which more than offset the impacts of an improved economic forecast and changes to the loan portfolio composition.

Sustained strength in loan quality metrics and the recording of net loan recoveries during both periods largely mitigated additional reserves associated with loan growth.

Noninterest income totaled $8.7 million during the first quarter of 2025, down from $10.9 million during the respective 2024 period as growth in treasury management fees, mortgage banking income, and payroll service fees was more than offset by lower levels of interest rate swap income, revenue generated from an investment in a private equity fund, and bank owned life insurance income.

The increase in treasury management fees mainly reflected customers’ expanded use of products and services and the successful marketing of these offerings to existing and new clients.

The higher level of mortgage banking income primarily resulted from increases in the percentage of loans originated with the intent to sell, which equaled approximately 80% during the current-year first quarter compared to approximately 74% during the first quarter of 2024, and total loan originations, which were up approximately 26% during the first quarter of 2025 compared to the corresponding 2024 period.

During the first quarter of 2025, interest rate swap income, which sometimes varies greatly from period to period due to the timing of closing transactions, was negatively impacted by the ongoing uncertainty surrounding economic and operating conditions and the associated reduction in commercial loan activity.

Noninterest income during the first three months of 2024 included bank owned life insurance claims totaling $0.7 million.

Noninterest expense totaled $31.1 million during the first quarter of 2025, compared to $29.9 million during the prior-year first quarter.

The increase primarily resulted from higher salary and benefit costs, largely reflecting annual merit pay increases and market adjustments.

A higher level of data processing costs, mainly reflecting increased software support costs, also contributed to the rise in noninterest expense.

Lower depreciation expense, largely reflecting facility expansion and leasehold improvement projects becoming fully depreciated during 2024, and a reduced reserve for commercial loan commitments positively impacted noninterest expense during the first three months of 2025.

Noninterest expense during the first quarter of 2024 included contributions to The Mercantile Bank Foundation totaling $0.7 million.

During the first quarter of 2025, we recorded income before federal income tax of $24.0 million and a federal income tax expense of $4.5 million.

During the first quarter of 2024, we recorded income before federal income tax of $27.0 million and a federal income tax expense of $5.4 million.

The $0.9 million decrease in federal income tax expense in the first three months of 2025 compared to the respective 2024 period primarily resulted from the lower level of income before federal income tax.

The aforementioned bank owned life insurance claims, substantially all of which were nontaxable, positively impacted the effective tax rate in the first three months of 2024.

Six months ended June 30,

(dollars in thousands)

Investment securities

Interest-earning assets

Total interest - earning assets

Allowance for credit losses

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

Short-term borrowings

Federal Home Loan Bank advances

Other borrowings

Total interest-bearing liabilities

Noninterest-bearing deposits

Other liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest income

Net interest rate spread

Net interest spread on average assets

Net interest margin on earning assets

MERCANTILE BANK CORPORATION

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.

MERCANTILE BANK CORPORATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements