Mercantile Bank Corporation (NASDAQ:MBWM) Q4 2022 Earnings Conference Call January 17, 2023 10:00 AM ET Company Participants Julia Ward - IR, Lambert Bob Kaminski - President & CEO Ray Reitsma - COO & President of the Bank Chuck Christmas - EVP & CFO Conference Call Participants Brendan Nosal - Piper Sandler Daniel Tamayo - Raymond James Erik Zwick - Hovde Group Damon DelMonte - KBW Operator Good morning, and welcome to the Mercantile Bank Corporation Fourth Quarter 2022 Earnings Results Conference Call. Al ...

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements show decreased total assets to $5.02 billion and mixed net income results for the third quarter and nine months ended September 30, 2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $5.02 billion due to lower cash, partially offset by loan growth, while shareholders' equity declined Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$5,016,934** | **$5,257,749** | | Cash and cash equivalents | $284,014 | $975,160 | | Loans, net | $3,841,838 | $3,418,096 | | Securities available for sale | $582,999 | $592,743 | | **Total Liabilities** | **$4,600,673** | **$4,801,190** | | Total deposits | $3,846,085 | $4,083,193 | | Federal Home Loan Bank advances | $338,263 | $374,000 | | **Total Shareholders' Equity** | **$416,261** | **$456,559** | | Accumulated other comprehensive loss | ($72,463) | ($3,729) | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Quarterly net income rose on higher net interest income, but year-to-date income fell due to reduced noninterest income and higher credit loss provisions Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $42,376 | $31,124 | $107,587 | $91,528 | | Provision for credit losses | $2,900 | $1,900 | $3,500 | ($900) | | Noninterest Income | $7,253 | $15,568 | $24,272 | $43,587 | | - Mortgage banking income | $1,764 | $6,554 | $6,991 | $23,049 | | Noninterest Expense | $26,756 | $26,210 | $79,440 | $77,519 | | **Net Income** | **$16,030** | **$15,051** | **$39,260** | **$47,382** | | Diluted EPS | $1.01 | $0.95 | $2.48 | $2.95 | [Consolidated Statements of Comprehensive Income/(Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%2F(Loss)) The company experienced a significant comprehensive loss driven by large unrealized holding losses on available-for-sale securities Comprehensive Income/(Loss) (in thousands) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $16,030 | $15,051 | $39,260 | $47,382 | | Other comprehensive income/(loss), net of tax | ($24,795) | ($1,802) | ($68,734) | ($5,782) | | **Comprehensive Income/(Loss)** | **($8,765)** | **$13,249** | **($29,474)** | **$41,600** | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity decreased to $416.3 million, primarily impacted by unrealized losses on securities and cash dividends - For the nine months ended September 30, 2022, shareholders' equity **decreased by $40.3 million**, driven by net income of $39.3 million, offset by cash dividends of $14.6 million and a significant **$68.7 million negative adjustment from unrealized losses on securities**[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by $691.1 million, driven by significant cash usage in investing and financing activities Cash Flow Summary (Nine Months Ended Sept 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $82,793 | $19,169 | | Net cash for investing activities | ($502,996) | ($316,436) | | Net cash (for) from financing activities | ($270,943) | $496,622 | | **Net change in cash and cash equivalents** | **($691,146)** | **$199,355** | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key accounting policy details include the adoption of CECL, Paycheck Protection Program loan status, and strong regulatory capital ratios - The company adopted the **CECL methodology** effective January 1, 2022, resulting in a transition adjustment that decreased the allowance for credit losses by **$0.4 million**[56](index=56&type=chunk) - The company participated in the Paycheck Protection Program (PPP), and as of September 30, 2022, only **$2.6 million** of these loans remained unforgiven[37](index=37&type=chunk)[39](index=39&type=chunk) - The company's bank was categorized as **"well capitalized"** under regulatory frameworks as of September 30, 2022, with a total capital to risk-weighted assets ratio of **13.4%**[202](index=202&type=chunk)[203](index=203&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=59&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q3 2022 performance to strong loan growth and net interest margin expansion, despite a year-to-date decline in mortgage banking revenue - Net income for Q3 2022 was **$16.0 million**, up from $15.1 million in Q3 2021, primarily due to higher net interest income which offset a significant decline in residential mortgage banking revenue[239](index=239&type=chunk) - Core commercial loans **grew by $232 million** (11% annualized) and residential mortgage loans **increased by $227 million** (over 68% annualized) in the first nine months of 2022[240](index=240&type=chunk)[241](index=241&type=chunk) - The provision for credit losses was **$2.9 million in Q3 2022**, driven by loan growth, increased specific reserves, and a decline in forecasted economic conditions[243](index=243&type=chunk) - Net interest margin **expanded to 3.56%** in Q3 2022 from 2.71% in Q3 2021, benefiting from the rising interest rate environment and a favorable shift in the earning asset mix[300](index=300&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with simulation analysis indicating a net interest income benefit from rising rates Net Interest Income Simulation Analysis (as of Sept 30, 2022) | Interest Rate Scenario | Dollar Change in NII | Percent Change in NII | | :--- | :--- | :--- | | Interest rates up 300 basis points | $19,700,000 | 10.0% | | Interest rates up 200 basis points | $13,000,000 | 6.6% | | Interest rates up 100 basis points | $6,300,000 | 3.2% | | Interest rates down 100 basis points | ($6,400,000) | (3.3%) | | Interest rates down 200 basis points | ($16,000,000) | (8.1%) | | Interest rates down 300 basis points | ($24,200,000) | (12.3%) | - The company's primary interest rate risk measurement technique is **net interest income simulation analysis**, which it believes is more accurate than traditional GAP analysis[322](index=322&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of the quarter's end - Management concluded that **disclosure controls and procedures were effective** as of September 30, 2022[327](index=327&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the third quarter of 2022[328](index=328&type=chunk) [PART II. Other Information](index=83&type=section&id=PART%20II.%20Other%20Information) [Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material legal proceedings - The company states that it is **not involved in any legal proceedings** that would be material to its financial condition[330](index=330&type=chunk) [Risk Factors](index=83&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported - **No material changes** to risk factors have occurred since the last annual report[331](index=331&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased in the first nine months of 2022, with $6.8 million remaining available under the current program - **No shares were repurchased** during the first nine months of 2022 under the existing $20.0 million stock repurchase program[333](index=333&type=chunk) - As of September 30, 2022, **$6.8 million was still available** for repurchase under the authorized plan[333](index=333&type=chunk) [Defaults Upon Senior Securities](index=83&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable [Mine Safety Disclosures](index=83&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable [Other Information](index=83&type=section&id=Item%205.%20Other%20Information) This item is not applicable [Exhibits](index=84&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and financial data

Mercantile Bank Corporation (NASDAQ:MBWM) Q3 2022 Earnings Conference Call October 18, 2022 10:00 AM ET Company Participants Julia Ward - Lambert IR Robert Kaminski - President & Chief Executive Officer Charles Christmas - EVP & CFO Raymond Reitsma - COO & President of the Bank Conference Call Participants Brendan Nosal - Piper Sandler Daniel Tamayo - Raymond James Eric Zwick - Hovde Damon DelMonte - KBW Operator Good morning, and welcome to the Mercantile Bank Corporation's Third Quarter 2022 Conference Ca ...

Conference Call and Webcast Presentation Third Quarter 2022 Company Overview Forward-Looking Statements Forward-Looking Statements This news release contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," " ...

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements show decreased assets and net income for the second quarter of 2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | **Total Assets** | **5,058,555** | **5,257,749** | | Total cash and cash equivalents | 479,105 | 975,160 | | Loans, net | 3,687,826 | 3,418,096 | | **Total Liabilities** | **4,629,572** | **4,801,190** | | Total deposits | 3,873,893 | 4,083,193 | | **Total Shareholders' Equity** | **428,983** | **456,559** | - Total assets decreased from **$5.26 billion** at year-end 2021 to **$5.06 billion** as of June 30, 2022, primarily due to a significant reduction in interest-earning deposits and total cash equivalents[9](index=9&type=chunk) - Net loans increased by approximately **$270 million**, from $3.42 billion to $3.69 billion, during the first six months of 2022[9](index=9&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Income Statement Highlights (Unaudited) | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 34,326 | 30,871 | 65,211 | 60,404 | | Provision for credit losses | 500 | (3,100) | 600 | (2,800) | | Noninterest Income | 7,741 | 14,556 | 17,018 | 28,019 | | **Net Income** | **11,737** | **18,091** | **23,229** | **32,331** | | **Diluted EPS** | **$0.74** | **$1.12** | **$1.47** | **$2.00** | - Net income for Q2 2022 was **$11.7 million**, a significant decrease from **$18.1 million** in Q2 2021, primarily driven by a sharp drop in noninterest income, particularly mortgage banking income which fell from $7.7 million to $1.9 million year-over-year[11](index=11&type=chunk) - The company recorded a **$500,000 provision for credit losses** in Q2 2022, compared to a release (negative provision) of **$3.1 million** in Q2 2021, indicating a shift in credit loss expectations[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive Income/(Loss) (Unaudited) | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 11,737 | 18,091 | 23,229 | 32,331 | | Other comprehensive income/(loss), net of tax | (15,776) | 3,263 | (43,939) | (3,980) | | **Comprehensive income/(loss)** | **(4,039)** | **21,354** | **(20,710)** | **28,351** | - The company experienced a comprehensive loss of **$4.0 million** in Q2 2022, compared to a comprehensive income of **$21.4 million** in Q2 2021, driven by a significant unrealized loss on securities available for sale[14](index=14&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) - Total shareholders' equity decreased from **$456.6 million** to **$429.0 million** in the first half of 2022, primarily due to a **$43.9 million** negative change in net unrealized holding gain/loss on securities[20](index=20&type=chunk) - Cash dividends of **$0.62 per common share** were paid during the first six months of 2022, totaling **$9.6 million**[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Unaudited, Six Months Ended June 30) | Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash from operating activities | 49,997 | 22,179 | | Net cash for investing activities | (336,399) | (194,750) | | Net cash (for) from financing activities | (209,653) | 306,096 | | **Net change in cash and cash equivalents** | **(496,055)** | **133,525** | - A net decrease in cash and cash equivalents of **$496.1 million** occurred in the first half of 2022, a stark contrast to the **$133.5 million** increase in the prior-year period[31](index=31&type=chunk) [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company adopted the Current Expected Credit Loss (CECL) methodology on January 1, 2022, resulting in a **$0.4 million** decrease in the allowance for credit losses[62](index=62&type=chunk)[222](index=222&type=chunk) - The Paycheck Protection Program (PPP) loan portfolio was significantly reduced to **$2.9 million** as of June 30, 2022[38](index=38&type=chunk)[41](index=41&type=chunk) - The bank was categorized as **"well capitalized"** under regulatory frameworks as of June 30, 2022, with all capital ratios exceeding minimum requirements[204](index=204&type=chunk)[205](index=205&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=59&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes lower Q2 2022 net income to reduced mortgage banking revenue, partially offset by strong commercial loan growth - Net income for Q2 2022 was **$11.7 million ($0.74/share)**, down from **$18.1 million ($1.12/share)** in Q2 2021, due to declining mortgage banking revenue from rising interest rates[238](index=238&type=chunk) - Core commercial loans grew by **$159 million (11% annualized)** and residential mortgage loans increased by **$148 million (66% annualized)** in the first half of 2022[239](index=239&type=chunk)[240](index=240&type=chunk) - Asset quality remains strong with nonperforming loans at **0.05% of total loans**, and a **$0.5 million** provision for credit losses was recorded in Q2 2022[241](index=241&type=chunk)[242](index=242&type=chunk) - The company adopted the CECL methodology on January 1, 2022, resulting in a one-time reduction to the allowance for credit losses of **$0.4 million**[222](index=222&type=chunk)[242](index=242&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=80&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, and simulations show an asset-sensitive position benefiting from rising rates - The company's primary market risk exposure is interest rate risk, measured using GAP analysis and Net Interest Income (NII) simulation[318](index=318&type=chunk)[324](index=324&type=chunk) Net Interest Income Simulation Analysis (as of June 30, 2022) | Interest Rate Scenario | Dollar Change in NII ($ thousands) | Percent Change in NII | | :--- | :--- | :--- | | Rates up 300 bps | 13,400 | 9.5% | | Rates up 200 bps | 8,800 | 6.3% | | Rates up 100 bps | 4,300 | 3.1% | | Rates down 100 bps | (4,500) | (3.2%) | | Rates down 200 bps | (10,000) | (7.2%) | - Simulation results indicate the company is **asset-sensitive**, meaning net interest income is expected to rise as interest rates increase and fall as they decrease[326](index=326&type=chunk)[327](index=327&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2022[329](index=329&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the quarter ended June 30, 2022[330](index=330&type=chunk) [PART II. Other Information](index=83&type=section&id=PART%20II.%20Other%20Information) [Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company states that it is not involved in any legal proceedings that would be **material** to its financial condition[332](index=332&type=chunk) [Risk Factors](index=83&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have been identified since the last annual report - **No material changes** to risk factors were reported since the last annual report (Form 10-K for year ended December 31, 2021)[333](index=333&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased in the first half of 2022, with $6.8 million remaining available under the current program - **No shares were repurchased** during the first six months of 2022 under the existing stock repurchase program[335](index=335&type=chunk) - As of June 30, 2022, **$6.8 million** remained available for future repurchases under the authorized **$20.0 million** program[335](index=335&type=chunk)[337](index=337&type=chunk) [Exhibits](index=84&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including CEO/CFO certifications and financial data in Inline XBRL format - The exhibits filed with this report include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, as well as financial statements formatted in **Inline XBRL**[344](index=344&type=chunk)

Conference Call and Webcast Presentation Second Quarter 2022 Company Overview Forward-Looking Statements Forward-Looking Statements This news release contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," ...

Mercantile Bank Corporation (NASDAQ:MBWM) Q2 2022 Earnings Conference Call July 19, 2022 10:00 AM ET Company Representatives Bob Kaminski - President, Chief Executive Officer Chuck Christmas - Executive Vice President, Chief Financial Officer Ray Reitsma - Chief Operating Officer, President of the Bank Jeff Tryka - Lambert Investor Relations Conference Call Participants Brendan Nosal - Piper Sandler Daniel Tamayo - Raymond James Damon DelMonte - KBW Operator Good morning and welcome to the Mercantile Bank C ...

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Mercantile Bank Corporation, including balance sheets, income statements, comprehensive income statements, statements of changes in shareholders' equity, and cash flow statements, along with detailed notes explaining significant accounting policies and specific financial instrument details [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets decreased to $5,175.9 million, driven by lower cash and deposits, offset by loan growth; liabilities and equity also declined | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total assets | $5,175,899 | $5,257,749 | $(81,850) | | Total cash and cash equivalents | $770,204 | $975,160 | $(204,956) | | Loans, net | $3,520,637 | $3,418,096 | $102,541 | | Total deposits | $3,976,251 | $4,083,193 | $(106,942) | | Total liabilities | $4,739,428 | $4,801,190 | $(61,762) | | Total shareholders' equity | $436,471 | $456,559 | $(20,088) | [Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) Net income decreased to **$11.5 million** in Q1 2022, driven by lower noninterest income, despite higher net interest income and reduced credit loss provision | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Total interest income | $35,882 | $34,785 | $1,097 | 3.15% | | Total interest expense | $4,997 | $5,252 | $(255) | -4.86% | | Net interest income | $30,885 | $29,533 | $1,352 | 4.58% | | Provision for credit losses | $100 | $300 | $(200) | -66.67% | | Total noninterest income | $9,277 | $13,463 | $(4,186) | -31.09% | | Total noninterest expenses | $25,742 | $25,117 | $625 | 2.49% | | Net income | $11,492 | $14,239 | $(2,747) | -19.29% | | Basic earnings per share | $0.73 | $0.87 | $(0.14) | -16.09% | | Diluted earnings per share | $0.73 | $0.87 | $(0.14) | -16.09% | | Cash dividends per share | $0.31 | $0.29 | $0.02 | 6.90% | [Consolidated Statements of Comprehensive Income (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Comprehensive income shifted from a gain to a **$16.7 million** loss in Q1 2022, driven by significant unrealized losses on available-for-sale securities | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net income | $11,492 | $14,239 | $(2,747) | | Unrealized holding gains (losses) on securities available for sale | $(35,650) | $(9,168) | $(26,482) | | Tax effect of unrealized holding gains (losses) on securities AFS | $7,487 | $1,925 | $5,562 |\n| Other comprehensive income (loss), net of tax effect | $(28,163) | $(7,243) | $(20,920) | | Comprehensive income (loss) | $(16,671) | $6,996 | $(23,667) | [Consolidated Statements of Changes in Shareholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(Unaudited)) Shareholders' equity decreased to **$436.5 million**, primarily due to a **$28.2 million** net unrealized loss on available-for-sale securities, offsetting net income | Metric | Balances, January 1, 2022 (in thousands) | Balances, March 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------------------------------ | :--------------------------------------- | :-------------------------------------- | :-------------------- | | Common Stock | $285,752 | $286,831 | $1,079 | | Retained Earnings | $174,536 | $181,532 | $6,996 | | Accumulated Other Comprehensive Income (Loss) | $(3,729) | $(31,892) | $(28,163) | | Total Shareholders' Equity | $456,559 | $436,471 | $(20,088) | - The change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect, was a significant negative impact of **$(28,163) thousand** on shareholders' equity during Q1 2022[19](index=19&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Cash and cash equivalents significantly decreased by **$205.0 million** in Q1 2022, driven by net cash used in investing and financing activities | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net cash from (for) operating activities | $27,888 | $(1,421) | $29,309 | | Net cash for investing activities | $(151,130) | $(237,925) | $86,795 | | Net cash from (for) financing activities | $(81,714) | $265,684 | $(347,398) | | Net change in cash and cash equivalents | $(204,956) | $26,338 | $(235,304) | | Cash and cash equivalents at end of period | $770,204 | $652,344 | $117,860 | [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section details disclosures for financial statements, covering accounting policies, financial instruments, regulatory capital, CECL adoption, pandemic impact, and fair value measurements [Note 1. Significant Accounting Policies](index=11&type=section&id=Note%201.%20Significant%20Accounting%20Policies) This note outlines financial statement presentation, pandemic impact, PPP accounting, and CECL adoption, detailing key policies for securities, loans, and credit losses - The company adopted the CECL methodology effective January 1, 2022, using the modified retrospective method. This resulted in a **$0.4 million** decrease in the allowance for credit losses and a **$0.3 million** increase to retained earnings[55](index=55&type=chunk)[211](index=211&type=chunk) - The Coronavirus Pandemic continues to pose stress and uncertainty, potentially impacting financial condition and results of operations through declining asset quality and negative effects on net interest income due to an asset-sensitive position[33](index=33&type=chunk)[222](index=222&type=chunk) | PPP Loan Program | Originated Loans (approx.) | Forgiveness Transactions (as of March 31, 2022) | Net Loan Origination Fees (Q1 2022) | | :--------------- | :------------------------- | :---------------------------------------------- | :---------------------------------- | | First Draw | $553 million (2,200 loans) | All but 6 loans ($0.9 million) | < $0.1 million | | Second Draw | $208 million (1,200 loans) | All but 38 loans ($11.3 million) | $0.8 million | [Note 2. Securities](index=21&type=section&id=Note%202.%20Securities) Debt securities, classified as available for sale, are carried at fair value and experienced a significant increase in unrealized losses in Q1 2022 due to changing interest rates | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Securities available for sale (Fair Value) | $605,661 | $592,743 | $12,918 | | Gross Unrealized Gains | $776 | $5,238 | $(4,462) | | Gross Unrealized Losses | $(41,146) | $(9,958) | $(31,188) | | Net Unrealized Loss | $(40,370) | $(4,720) | $(35,650) | - At March 31, 2022, **527 debt securities** had unrealized losses aggregating **$41.1 million**, up from **$10.0 million** (**333 securities**) at December 31, 2021. These losses are attributed to changing interest rate environments, and the company does not intend to sell them before recovery[102](index=102&type=chunk) [Note 3. Loans and Allowance for Credit Losses](index=23&type=section&id=Note%203.%20Loans%20and%20Allowance%20for%20Credit%20Losses) Total loans increased by **$102 million** to **$3.56 billion**, driven by commercial and retail growth, while nonperforming loans decreased and the allowance for credit losses remained stable | Loan Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :---------------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | :------- | | Total loans | $3,555,790 | $3,453,459 | $102,331 | 3.0% | | Commercial and industrial (incl. PPP) | $1,153,814 | $1,137,419 | $16,395 | 1.4% | | Vacant land, land development, residential construction | $52,693 | $43,239 | $9,454 | 21.9% | | 1-4 family mortgages | $522,556 | $442,547 | $80,009 | 18.1% | | Other consumer loans | $28,672 | $60,488 | $(31,816) | -52.6% | | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Total nonperforming loans | $1,612 | $2,468 | $(856) | | Allowance for credit losses | $35,153 | $35,363 | $(210) | | Allowance for credit losses as % of total loans | 0.99% | 1.02% | -0.03% | - Net loan recoveries totaled **$0.1 million** in Q1 2022 (**0.01%** of average total loans annualized), resulting from **$0.3 million** in recoveries offsetting **$0.2 million** in charge-offs[132](index=132&type=chunk)[253](index=253&type=chunk) [Note 4. Premises and Equipment, Net](index=40&type=section&id=Note%204.%20Premises%20and%20Equipment,%20Net) Net premises and equipment decreased by **$1.2 million** to **$56.1 million** due to depreciation expense, with details on operating lease commitments for banking facilities | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Premises and equipment, net | $56,078 | $57,298 | $(1,220) | | Depreciation expense (Q1) | $1,600 | $1,400 | $200 | - The company has operating lease liabilities and right-of-use assets of **$2.6 million** as of March 31, 2022, for ten banking facilities with maturities ranging from June 2022 through December 2026[144](index=144&type=chunk)[146](index=146&type=chunk) [Note 5. Deposits](index=42&type=section&id=Note%205.%20Deposits) Total deposits decreased by **$107 million** to **$3.98 billion**, mainly due to lower money market and time deposits, with a single customer withdrawal impacting local deposits | Deposit Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :---------------------------- | :------------------------------- | :-------------------- | :------- | | Total deposits | $3,976,251 | $4,083,193 | $(106,942) | -2.6% | | Noninterest-bearing checking | $1,686,203 | $1,677,952 | $8,251 | 0.5% | | Interest-bearing checking | $544,221 | $538,838 | $5,383 | 1.0% | | Money market | $943,246 | $1,040,176 | $(96,930) | -9.3% | | Savings | $406,545 | $394,330 | $12,215 | 3.1% | | Time, under $100,000 | $127,755 | $132,776 | $(5,021) | -3.8% | | Time, $100,000 and over | $252,088 | $275,208 | $(23,120) | -8.4% | - The decrease in local deposits primarily reflected a single customer's withdrawal of a majority of funds deposited in late 2021. Excluding this, local deposits were up approximately **$50 million**[231](index=231&type=chunk)[266](index=266&type=chunk) [Note 6. Securities Sold Under Agreements to Repurchase](index=42&type=section&id=Note%206.%20Securities%20Sold%20Under%20Agreements%20to%20Repurchase) Repurchase agreements increased to **$204.3 million** at March 31, 2022, from **$197.5 million**, with the average interest rate remaining low | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Outstanding balance at end of period | $204,271 | $197,463 | $6,808 | | Average interest rate at end of period | 0.10% | 0.11% | -0.01% | | Average daily balance during the period | $198,949 | $158,855 | $40,094 | [Note 7. Federal Home Loan Bank of Indianapolis Advances](index=43&type=section&id=Note%207.%20Federal%20Home%20Loan%20Bank%20of%20Indianapolis%20Advances) FHLBI advances increased by **$8.3 million** to **$382.3 million**, including new amortizing advances, used for interest rate risk management and loan growth | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Total FHLBI advances | $382,263 | $374,000 | $8,263 | | FHLBI bullet advances | $354,000 | $374,000 | $(20,000) | | FHLBI amortizing advances | $28,300 | $0 | $28,300 | | Average rate on FHLBI bullet advances | 1.98% | 2.00% | -0.02% | - The company's borrowing line of credit with FHLBI totaled **$932 million** as of March 31, 2022, with **$544 million** remaining availability based on collateral[155](index=155&type=chunk) [Note 8. Commitments and Off-Balance Sheet Risk](index=43&type=section&id=Note%208.%20Commitments%20and%20Off-Balance%20Sheet%20Risk) Off-balance sheet commitments totaled **$1.54 billion**, primarily commercial unused lines and loan commitments, with an allowance for credit exposures maintained | Off-Balance Sheet Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Commercial unused lines of credit | $1,115,888 | $1,098,951 | $16,937 | | Unused lines of credit secured by 1–4 family residential properties | $65,112 | $64,313 | $799 | | Commitments to make loans | $158,102 | $212,476 | $(54,374) | | Standby letters of credit | $32,954 | $33,109 | $(155) | | Total off-balance sheet commitments | $1,540,413 | $1,565,871 | $(25,458) | - The calculated allowance for retail lines of credit and credit cards as of March 31, 2022, was **less than $0.1 million**[160](index=160&type=chunk) [Note 9. Derivatives and Hedging Activities](index=44&type=section&id=Note%209.%20Derivatives%20and%20Hedging%20Activities) Interest rate swaps manage commercial loan interest rate risk, not for trading, with a **$338.2 million** notional amount and a **$0.2 million** net liability as of March 31, 2022 | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Notional Amount of Interest Rate Swaps | $338,231 | $279,419 | $58,812 | | Derivative Assets (Fair Value) | $10,053 | $4,609 | $5,444 | | Derivative Liabilities (Fair Value) | $10,246 | $4,857 | $5,389 | | Net Fair Value (Liabilities - Assets) | $(193) | $(248) | $55 | - The effect of interest rate swaps not designated as hedging instruments resulted in noninterest income of **less than $0.1 million** during Q1 2022[165](index=165&type=chunk) [Note 10. Fair Values of Financial Instruments](index=46&type=section&id=Note%2010.%20Fair%20Values%20of%20Financial%20Instruments) This note presents carrying and fair values for financial instruments, with valuations based on market prices, dealer quotes, exit price models, and valuation models | Financial Instrument | March 31, 2022 Carrying Value (in thousands) | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Carrying Value (in thousands) | December 31, 2021 Fair Value (in thousands) | | :------------------------------ | :------------------------------------------- | :--------------------------------------- | :---------------------------------------------- | :------------------------------------------ | | Securities available for sale | $605,661 | $605,661 | $592,743 | $592,743 | | Loans, net | $3,520,637 | $3,542,217 | $3,418,096 | $3,498,345 | | Deposits | $3,976,251 | $3,795,104 | $4,083,193 | $4,028,249 | | FHLBI advances | $382,263 | $372,887 | $374,000 | $384,927 | | Interest rate swaps (assets) | $10,053 | $10,053 | $4,609 | $4,609 | | Interest rate swaps (liabilities) | $10,246 | $10,246 | $4,857 | $4,857 | [Note 11. Fair Values](index=47&type=section&id=Note%2011.%20Fair%20Values) This note defines fair value and outlines the Level 1, 2, and 3 hierarchy, describing methodologies for valuing securities, derivatives, and impaired loans - The company uses a fair value hierarchy: **Level 1** (quoted prices in active markets), **Level 2** (significant other observable inputs), and **Level 3** (significant unobservable inputs)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) | Asset Type (Recurring Fair Value) | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :-------------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | **March 31, 2022** | | | | | | U.S. Government agency debt obligations | $410,578 | $0 | $410,578 | $0 | | Mortgage-backed securities | $37,746 | $0 | $37,746 | $0 | | Municipal general obligation bonds | $134,671 | $0 | $133,994 | $677 | | Municipal revenue bonds | $22,166 | $0 | $22,166 | $0 | | Interest rate swaps | $10,053 | $0 | $10,053 | $0 | | **December 31, 2021** | | | | | | U.S. Government agency debt obligations | $390,371 | $0 | $390,371 | $0 | | Mortgage-backed securities | $41,803 | $0 | $41,803 | $0 | | Municipal general obligation bonds | $137,594 | $0 | $136,917 | $677 | | Municipal revenue bonds | $22,475 | $0 | $22,475 | $0 | | Interest rate swaps | $4,609 | $0 | $4,609 | $0 | | Asset Type (Nonrecurring Fair Value) | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :----------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | **March 31, 2022** | | | | | | Loans | $1,338 | $0 | $0 | $1,338 | | **December 31, 2021** | | | | | | Impaired loans | $3,807 | $0 | $0 | $3,807 | [Note 12. Regulatory Matters](index=50&type=section&id=Note%2012.%20Regulatory%20Matters) The company and its bank were "well capitalized" at March 31, 2022, exceeding all minimum regulatory capital ratios, with details on dividends and stock repurchase programs - Both Mercantile Bank Corporation (consolidated) and Mercantile Bank (bank) were categorized as **"well capitalized"** under regulatory frameworks as of March 31, 2022, and December 31, 2021[193](index=193&type=chunk) | Capital Ratio (Consolidated) | Actual Ratio (March 31, 2022) | Minimum Required for Capital Adequacy | | :--------------------------------------- | :---------------------------- | :------------------------------------ | | Total capital (to risk weighted assets) | 14.1% | 8.0% | | Tier 1 capital (to risk weighted assets) | 11.1% | 6.0% | | Common equity tier 1 (to risk weighted assets) | 10.0% | 4.5% | | Tier 1 capital (to average assets) | 9.0% | 4.0% | - The Board of Directors declared a cash dividend of **$0.31 per share** for Q1 2022, paid on March 16, 2022, and another **$0.31 per share** dividend declared on April 14, 2022, to be paid on June 15, 2022[200](index=200&type=chunk) - As of March 31, 2022, the company had **$6.8 million** remaining under a **$20.0 million** common stock repurchase program authorized in May 2021. No shares were repurchased in Q1 2022[201](index=201&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 financial performance and condition, covering critical accounting policies, pandemic impact, liquidity, capital, and operations, highlighting loan growth, declining mortgage income, and CECL adoption [Forward-Looking Statements](index=53&type=section&id=Forward-Looking%20Statements) This section notes the report contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially, with no obligation to update - The report contains forward-looking statements that are not guarantees of future performance and involve risks, uncertainties, and assumptions that could cause actual results to differ materially[203](index=203&type=chunk) - Future factors influencing performance include adverse changes in interest rates, inflation, real estate values, market volatility, competition, regulatory changes, cyber-attacks, litigation, and the ongoing impact of the Coronavirus Pandemic[204](index=204&type=chunk) [Introduction](index=53&type=section&id=Introduction) This section introduces the management's discussion, comparing financial condition at March 31, 2022, and December 31, 2021, and Q1 2022 and Q1 2021 results - The discussion compares financial condition at March 31, 2022, and December 31, 2021, and results of operations for the three months ended March 31, 2022, and March 31, 2021[205](index=205&type=chunk) [Critical Accounting Policies](index=53&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies, including CECL, Income Tax, Debt Securities, Mortgage Servicing Rights, and Goodwill, involve significant judgment and estimates that can materially impact financial statements - Critical accounting policies, including Allowance for Credit Losses, Income Tax Accounting, Debt Securities Available for Sale, Mortgage Servicing Rights, and Goodwill, involve significant judgment and estimates, with potential for material impact on financial statements[206](index=206&type=chunk) - The company adopted the CECL model effective January 1, 2022, replacing the "incurred loss" approach, which resulted in a **$0.4 million** decrease in the allowance for credit losses and a **$0.3 million** increase to retained earnings[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk) [Coronavirus Pandemic](index=56&type=section&id=Coronavirus%20Pandemic) The Coronavirus Pandemic continues to create economic stress and uncertainty, potentially impacting financial condition and operations due to asset sensitivity, with details on PPP and regulatory deferrals - The Coronavirus Pandemic continues to cause significant stress and uncertainty, potentially leading to declining asset quality and negative impacts on net interest income due to the company's asset-sensitive position[221](index=221&type=chunk)[222](index=222&type=chunk) - The company participated in the PPP, originating approximately **2,200 loans** (**$553 million**) in the first draw and **1,200 loans** (**$208 million**) in the second draw. As of March 31, 2022, most loans had forgiveness transactions recorded[223](index=223&type=chunk)[224](index=224&type=chunk) - Regulatory relief for Troubled Debt Restructuring (TDR) and Current Expected Credit Loss (CECL) methodology adoption was extended, with the company electing to postpone CECL adoption until January 1, 2022[225](index=225&type=chunk) [First Quarter 2022 Financial Overview](index=57&type=section&id=First%20Quarter%202022%20Financial%20Overview) Net income for Q1 2022 was **$11.5 million** (**$0.73** diluted EPS), down from **$14.2 million** in Q1 2021, primarily due to decreased mortgage banking revenue, despite strong loan growth | Metric | Q1 2022 (in millions) | Q1 2021 (in millions) | Change (in millions) | YoY Change (%) | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------------- | | Net income | $11.5 | $14.2 | $(2.7) | -19.01% | | Diluted EPS | $0.73 | $0.87 | $(0.14) | -16.09% | | Provision for credit losses | $0.1 | $0.3 | $(0.2) | -66.67% | - Core commercial loans increased by **$82.0 million** (over **11%** annualized) in Q1 2022, while PPP payment activities aggregated **$27.9 million**[227](index=227&type=chunk) - Nonperforming loans were very low at **0.05%** of total loans as of March 31, 2022, and the company had no foreclosed properties. Net loan recoveries totaled **$0.1 million** in Q1 2022[228](index=228&type=chunk) - Elevated interest-earning balances (primarily at the Federal Reserve Bank of Chicago) negatively impacted net interest margin due to increased local deposits from federal stimulus and reduced spending[230](index=230&type=chunk) [Financial Condition](index=58&type=section&id=Financial%20Condition) Total assets decreased by **$81.9 million** to **$5.18 billion**, driven by lower interest-earning deposits, partially offset by increased loans and securities, with nonperforming assets remaining low | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------------------- | :--------------------------- | :------------------------------ | :------------------- | | Total assets | $5,180 | $5,258 | $(78) | | Total loans | $3,556 | $3,453 | $103 | | Securities available for sale | $606 | $593 | $13 | | Interest-earning deposits | $699 | $916 | $(217) | | Total deposits | $3,976 | $4,083 | $(107) | | Nonperforming assets | $1.6 | $2.5 | $(0.9) | - Commercial loans increased **$54.1 million** in Q1 2022, with core commercial loans growing **$82.0 million** (**11%** annualized), while PPP loan activities reduced by **$27.9 million**[236](index=236&type=chunk) - Residential mortgage loans increased **$48.1 million** to **$523 million**, representing **14.7%** of total loans. Originations declined by almost **32%** YoY, with refinance activity decreasing significantly[239](index=239&type=chunk) - The allowance for credit losses was **$35.2 million**, or **0.99%** of total loans, and **2,181%** of nonperforming loans, as of March 31, 2022[253](index=253&type=chunk) [Liquidity](index=65&type=section&id=Liquidity) The company manages liquidity through deposits, borrowed funds, and capital, with wholesale funds stable at **$398 million**, sweep accounts increasing, and FHLBI advances rising, maintaining significant borrowing capacity - Wholesale funds, comprising out-of-market deposits and FHLBI advances, totaled **$398 million** (**8.7%** of combined deposits and borrowed funds) as of March 31, 2022, stable from December 31, 2021[273](index=273&type=chunk) | Metric | March 31, 2022 (in thousands) | | :-------------------------------------- | :---------------------------- | | Repurchase agreements outstanding balance | $204,271 | | FHLBI advances | $382,263 | | Correspondent bank unsecured federal funds purchased lines of credit | $70,000 | | Federal Reserve Bank of Chicago Discount Window availability | $31,100 | - The company had **$1.51 billion** in unfunded loan commitments and **$33.0 million** in unfunded standby letters of credit as of March 31, 2022[277](index=277&type=chunk) [Capital Resources](index=66&type=section&id=Capital%20Resources) Shareholders' equity decreased to **$436 million** due to a **$28.2 million** after-tax decline in available-for-sale securities, while the bank's total risk-based capital ratio exceeded minimums | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------------------- | :--------------------------- | :------------------------------ | :------------------- | | Shareholders' equity | $436 | $457 | $(21) | | After-tax decline in AFS securities market value | $(28.2) | N/A | N/A | - The bank's total risk-based capital ratio was **13.8%** at March 31, 2022, exceeding the **10.0%** minimum for "well capitalized" status by **$157 million**[282](index=282&type=chunk) - The company had **$6.8 million** remaining under its **$20.0 million** common stock repurchase program as of March 31, 2022, with no repurchases made in Q1 2022[201](index=201&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) [Results of Operations](index=67&type=section&id=Results%20of%20Operations) Net income for Q1 2022 was **$11.5 million**, down from **$14.2 million** in Q1 2021, driven by decreased noninterest income and increased noninterest expense, offset by improved net interest income | Metric | Q1 2022 (in millions) | Q1 2021 (in millions) | Change (in millions) | YoY Change (%) | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------------- | | Net income | $11.5 | $14.2 | $(2.7) | -19.01% | | Net interest income | $30.9 | $29.5 | $1.4 | 4.75% | | Noninterest income | $9.3 | $13.5 | $(4.2) | -31.11% | | Noninterest expense | $25.7 | $25.1 | $0.6 | 2.39% | | Provision for credit losses | $0.1 | $0.3 | $(0.2) | -66.67% | | Metric | Q1 2022 | Q1 2021 | Change | | :-------------------------------------- | :------ | :------ | :----- | | Net interest margin on earning assets | 2.57% | 2.77% | -0.20% | | Yield on average earning assets | 2.99% | 3.26% | -0.27% | | Weighted average cost of interest-bearing liabilities | 0.66% | 0.82% | -0.16% | - Mortgage banking income significantly decreased due to reduced refinance activity (down **59%** YoY) and rising interest rates, despite a **24%** increase in purchase mortgage originations[292](index=292&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate risk, managed via GAP analysis and net interest income simulation, projecting increased net interest income with rising rates and showing cumulative positive GAP - The company's primary market risk exposure is interest rate risk, managed using GAP analysis and net interest income simulation[295](index=295&type=chunk)[296](index=296&type=chunk) | Interest Rate Scenario (over next 12 months) | Dollar Change in Net Interest Income (in thousands) | Percent Change in Net Interest Income | | :------------------------------------------- | :-------------------------------------------------- | :------------------------------------ | | Interest rates down 100 basis points | $9,100 | 7.0% | | Interest rates up 100 basis points | $7,400 | 5.7% | | Interest rates up 200 basis points | $15,100 | 11.7% | | Interest rates up 300 basis points | $22,800 | 17.6% | | Interest rates up 400 basis points | $30,500 | 23.6% | | GAP Position (March 31, 2022) | Cumulative GAP (in thousands) | Percent of Cumulative GAP to Total Assets | | :---------------------------- | :---------------------------- | :---------------------------------------- | | Within Three Months | $(424,904) | (8.2)% | | Within Twelve Months | $(320,956) | (6.2)% | | One to Five Years | $752,338 | 14.5% | | After Five Years | $1,863,270 | 36.0% | [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[306](index=306&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[307](index=307&type=chunk) [PART II. Other Information](index=74&type=section&id=PART%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=74&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any current legal proceedings material to its financial condition - The company is not involved in any material legal proceedings[310](index=310&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's annual report on Form 10-K - No material changes to risk factors from the prior annual report on Form 10-K[311](index=311&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or common stock repurchases occurred in Q1 2022, with **$6.8 million** remaining under the repurchase program - No unregistered sales of equity securities were made during Q1 2022[312](index=312&type=chunk) | Metric | Q1 2022 | | :-------------------------------------- | :------ | | Total Number of Shares Purchased | 0 | | Approximate Dollar Value Remaining Under Repurchase Program | $6,818,000 | [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reported period - Not applicable[316](index=316&type=chunk) [Item 4. Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company for the reported period - Not applicable[317](index=317&type=chunk) [Item 5. Other Information](index=74&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company for the reported period - Not applicable[318](index=318&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including Articles of Incorporation, Bylaws, Certifications, and Inline XBRL financial information - The report includes various exhibits such as Articles of Incorporation, Bylaws, Rule 13a-14(a) Certifications, Section 1350 Certifications, and Inline XBRL financial information[320](index=320&type=chunk) [Signatures](index=76&type=section&id=Signatures) The report was signed by Robert B. Kaminski, Jr. (President and CEO) and Charles E. Christmas (EVP, CFO, and Treasurer) on May 6, 2022 - The report was signed by Robert B. Kaminski, Jr. (President and CEO) and Charles E. Christmas (EVP, CFO, and Treasurer) on May 6, 2022[322](index=322&type=chunk)[323](index=323&type=chunk)

Mercantile Bank Corporation (NASDAQ:MBWM) Q1 2022 Earnings Conference Call April 19, 2022 10:00 AM ET Company Participants Kate Croft - Lambert, Investor Relations Robert Kaminski - President and Chief Executive Officer Charles Christmas - Executive Vice President and Chief Financial Officer Ray Reitsma - Chief Operating Officer and President of the Bank Conference Call Participants Brendan Nosal - Piper Sandler Daniel Tamayo - Raymond James Damon DelMonte - KBW Bryce Rowe - Hovde Group John Rodis - Janney ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-26719 MERCANTILE BANK CORPORATION | (Exact name of registrant as specified in its charter) | | | --- | --- | | Michigan | 38-3 ...