Mercantile Bank (US:MBWM)2025-08-01 12:11Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Mercantile Bank Corporation as of June 30, 2025, and for the three and six-month periods then ended Consolidated Balance Sheets As of June 30, 2025, total assets increased to $6.18 billion from $6.05 billion at year-end 2024, driven by growth in loans and securities available for sale Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,180,988 | $6,052,161 | | Loans, net | $4,639,644 | $4,546,327 | | Securities available for sale | $826,415 | $730,352 | | Total cash and cash equivalents | $296,072 | $393,010 | | Total Liabilities | $5,549,469 | $5,467,635 | | Total deposits | $4,710,472 | $4,698,366 | | Federal Home Loan Bank advances | $356,221 | $387,083 | | Total Shareholders' Equity | $631,519 | $584,526 | Consolidated Statements of Income For the second quarter of 2025, net income was $22.6 million, an increase from $18.8 million in Q2 2024, driven by higher net interest income and lower provision for credit losses Key Income Statement Data (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $49,479 | $47,072 | $98,027 | $94,434 | | Provision for credit losses | $1,600 | $3,500 | $3,700 | $4,800 | | Net Income | $22,618 | $18,786 | $42,155 | $40,348 | | Diluted EPS | $1.39 | $1.17 | $2.60 | $2.50 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for the first six months of 2025 was $56.2 million, a significant increase from $37.6 million in the same period of 2024, primarily due to higher net income and positive changes in unrealized gains on securities Comprehensive Income (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $22,618 | $18,786 | $42,155 | $40,348 | | 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 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $584.5 million at the beginning of 2025 to $631.5 million at June 30, 2025, primarily due to $42.2 million in net income and a $14.1 million positive change in accumulated other comprehensive income, partially offset by $11.8 million in cash dividends - Key drivers for the increase in shareholders' equity in the first six months of 2025 were net income and a favorable change in net unrealized gains on securities available for sale21 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities was $10.8 million, and net cash used in investing activities was $177.3 million, primarily due to loan originations and securities purchases, resulting in a net decrease in cash and cash equivalents of $96.9 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from (for) operating activities | $(10,781) | $49,349 | | Net cash for investing activities | $(177,287) | $(168,605) | | Net cash from financing activities | $91,130 | $186,352 | | Net change in cash and cash equivalents | $(96,938) | $67,096 | Notes to Consolidated Financial Statements The notes detail accounting policies, financial components, and a significant subsequent merger event, highlighting a $3.7 million provision for credit losses in H1 2025, a $45.3 million net unrealized loss on securities, and the bank's 'well capitalized' regulatory status - The provision for credit losses was $3.7 million for the first six months of 2025, primarily reflecting a net increase in individual allocations, net loan growth, and changes in the economic forecast60 - As of June 30, 2025, the bank was categorized as 'well capitalized' under the regulatory framework for prompt corrective action182 - On July 22, 2025, the company entered into a definitive merger agreement to acquire Eastern Michigan Financial Corporation (EFIN) for an aggregate transaction value of approximately $95.8 million192193 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong H1 2025 performance to increased net interest income, lower provision expense, and reduced federal income tax, with total assets growing to $6.18 billion, commercial loans increasing by $114 million, and nonperforming loans at 0.21% of total loans, while highlighting the pending merger with Eastern Michigan Financial Corporation - Net income for Q2 2025 was $22.6 million ($1.39 per diluted share), up from $18.8 million ($1.17 per diluted share) in Q2 2024, with H1 2025 net income at $42.2 million, up from $40.3 million in H1 2024204 - Commercial loans grew by $114 million in the first six months of 2025, an annualized rate of about 6%, with a strong commercial loan pipeline of $237 million in unfunded commitments205 - The overall quality of the loan portfolio remains strong, with nonperforming loans at 0.21% of total loans as of June 30, 2025207 - The effective tax rate for H1 2025 was 15.7%, down from 20.1% in H1 2024, primarily due to a $1.5 million benefit from the acquisition of transferable energy tax credits214 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed through GAP analysis and NII simulation, which indicates a 2.7% increase in NII for a 100 basis point rate rise and a 2.9% decrease for a 100 basis point rate drop over 12 months - The primary market risk exposure is identified as interest rate risk, with all transactions denominated in U.S. dollars268 Net Interest Income Sensitivity Analysis (as of June 30, 2025) | Interest Rate Scenario | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | Down 400 bps | $(29,500) | (13.1)% | | Down 200 bps | $(15,000) | (6.6)% | | Down 100 bps | $(6,600) | (2.9)% | | Up 100 bps | $6,200 | 2.7% | | Up 200 bps | $12,800 | 5.7% | | Up 300 bps | $19,000 | 8.4% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2025280 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025281 Part II. Other Information Item 1. Legal Proceedings The company reports no involvement in any legal proceedings considered material to its financial condition - The company is not involved in any material legal proceedings283 Item 1A. Risk Factors This section updates risk factors to include those related to the definitive merger agreement with Eastern Michigan Financial Corporation, covering potential non-consummation, integration difficulties, business uncertainties, and substantial transaction costs - On July 22, 2025, Mercantile announced a definitive merger agreement to acquire Eastern Michigan Financial Corporation285 - Risks associated with the merger include: - The merger may not be consummated due to failure to meet closing conditions, such as shareholder and regulatory approvals286 - Integration may be more difficult, costly, or time-consuming than expected, and anticipated benefits may not be realized288 - Uncertainty about the merger's effect could adversely impact business relationships and employee retention290 - Substantial non-recurring transaction costs are expected, regardless of whether the merger is completed292 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or share repurchases occurred in Q2 2025, with $6.8 million remaining available under the existing stock repurchase program - No unregistered sales of equity securities were made in Q2 2025293 - No shares were repurchased during the second quarter of 2025. As of June 30, 2025, $6.8 million remains available under the existing stock repurchase program294296 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, security holder rights instruments, CEO/CFO certifications, and Inline XBRL financial statements