Mercantile Bank (MBWM) risk factors, FY2024 10-K

Other

1. 01Market Information and Holders
2. 02Issuer Purchases of Equity Securities
3. 03Shareholder Return Performance Graph
4. 04Financial Statements and Supplementary Data
5. 05There have been no significant changes in our internal control over financial reporting during the year ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
6. 06Directors, Executive Officers and Corporate Governance
7. 07Item 15. Exhibits and Financial Statement Schedules
8. 08Notes to Consolidated Financial Statements
9. 09FORWARD-LOOKING STATEMENTS
10. 10CRITICAL ACCOUNTING ESTIMATES
11. 11ENVIRONMENTAL, SOCIAL, AND GOVERNANCE MATTERS
12. 12Other consumer-related loans totaled $65.9 million, or 1.4% of total loans, at December 31, 2024. We expect this loan portfolio segment to remain relatively steady in dollar amount but decline as a percent of total loans in future periods as the commercial loan segment grows
13. 13$ 3,002,166 $ 1,101,671 $ 496,944 $ 4,600,781
14. 14Net Charge-Offs to Average Loans
15. 1533,789 3,707,304 0.91 2,767 0.07 1,221.14 3,194 0.09
16. 1628,047 3,415,299 0.82 319 0.01 8,792.16 (48 ) (0.00 )
17. 1728,040 3,131,830 0.90 6,272 0.20 447.07 (115 ) (0.00 )
18. 18$ 42,246 $ 3,916,619 1.08 % $ 7,728 0.20 % 546.66 % $ (733 ) (0.02 )%
19. 19948.3 % 1,461.7 % 546.7 %
20. 20See Note 1 - Significant Accounting Policies in this Form 10-K for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 - Loans and Allowance for Credit Losses in this Form 10-K for further information regarding our loan portfolio and allowance
21. 21Although we believe the allowance is adequate to absorb loan losses in our originated 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
22. 22We recorded net income of $79.6 million, or $4.93 per basic and diluted share, for 2024, compared to net income of $82.2 million, or $5.13 per basic and diluted share, for 2023. Diluted earnings per share decreased $0.20, or 3.9%, during 2024 compared to 2023
23. 23$ (2,459 ) $ 5,008 $ (7,467 ) $ 35,301 $ 6,463 $ 28,838
24. 24Provision for Credit Losses
25. 25Federal Income Tax Expense
26. 261,053 2,256 1,727 1,037 6,073
27. 27$ 2,101,302 $ 2,113,504 $ 1,908,294
28. 28Months Months Years Years Total
29. 29$ 3,179,590 $ 227,883 $ 1,412,045 $ 863,458 $ 6,052,161
30. 30Mortgage-backed securities are categorized by expected maturities based upon prepayment trends as of December 31, 2024
31. 31Opinion on the Consolidated Financial Statements
32. 32We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud
33. 33Allowance for Credit Losses – General Reserve
34. 34We obtained an understanding of management's process for determining the need for qualitative factor adjustments, identifying appropriate factors, and measuring the direction and magnitude of the adjustment
35. 35Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources
36. 36Opinion on Internal Control over Financial Reporting
37. 37Definition and Limitations of Internal Control over Financial Reporting
38. 38Change in Accounting Principle
39. 39ON INTERNAL CONTROL OVER FINANCIAL REPORTING
40. 40$ 79,593 $ 82,217 $ 61,063
41. 41Supplemental disclosures of cash flows information
42. 42NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
43. 43Operating Segments: We conduct our operations through a single business segment, which derives interest and noninterest income through our banking products and services and investment securities. All of our income relates to our operations in the United States
44. 44NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
45. 45Local or regional conditions that depart from the conditions and forecasts for the entire country
46. 46NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
47. 47Advertising Costs: Advertising costs are expensed as incurred
48. 48$ 680,998 $ 2,206 $ (66,112 ) $ 617,092
49. 49NOTE 2 – SECURITIES (Continued)
50. 50No securities were sold during the last three years
51. 51NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
52. 52Non-Owner Occupied Commercial Real Estate: Loans in this category are susceptible to declines in occupancy rates, business failure, and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category
53. 53Other Consumer Loans: Risks common to these loans include regulatory risks, unemployment, and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property
54. 54NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
55. 553,707,304 80.6 3,415,299 79.4 8.5
56. 56$ 4,600,781 100.0 % $ 4,303,758 100.0 % 6.9 %
57. 57Past Due Past Due Past Due Past Due Current Loans Accruing
58. 5817 0 864 881 3,706,423 3,707,304 0
59. 594 0 319 323 3,414,976 3,415,299 0
60. 60Industrial Construction Occupied Occupied Rental
61. 61$ 1,287,308 $ 66,936 $ 748,837 $ 1,128,404 $ 475,819
62. 62$ 1,254,586 $ 74,753 $ 717,667 $ 1,035,684 $ 332,609
63. 63“Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted
64. 642024 2023 2022 2021 2020 Prior Term Total Loans Total
65. 65$ 0 $ 0 $ 0 $ 0 $ 3,741 $ 0 $ 3,741 $ 9 $ 3,750
66. 66$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
67. 67$ 0 $ 0 $ 0 $ 33 $ 0 $ 0 $ 33 $ 0 $ 33
68. 68$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 218 $ 218
69. 69$ 0 $ 14 $ 0 $ 0 $ 0 $ 40 $ 54 $ 0 $ 54
70. 70$ 0 $ 14 $ 0 $ 0 $ 0 $ 40 $ 54 $ 218 $ 272
71. 71$ 0 $ 174 $ 0 $ 0 $ 0 $ 240 $ 414 $ 0 $ 414
72. 72industrial construction occupied occupied rental mortgages loans Unallocated Total
73. 73$ 11,165 $ 367 $ 7,671 $ 10,919 $ 3,667 $ 18,702 $ 1,936 $ 27 $ 54,454
74. 74industrial construction occupied occupied rental mortgages and other Unallocated Total
75. 75$ 0 $ 6,616 $ 0 $ 0 $ 28,813 $ 0
76. 76Loans listed under Term Extension were generally granted a series of short-term maturity extensions as part of the workout process and associated forbearance agreement
77. 77NOTE 4 - PREMISES AND EQUIPMENT, NET
78. 78Depreciation expense totaled $6.0 million in 2024, 2023 and 2022
79. 79NOTE 5 – MORTGAGE LOAN SERVICING
80. 80Custodial escrow balances, which are reported as deposits on the Consolidated Balance Sheets, maintained in connection with serviced loans were $10.9 million and $10.1 million as of December 31, 2024 and 2023, respectively
81. 81Mortgage servicing rights result from our mortgage loan origination activities. Late and ancillary fees, included as part of mortgage banking income and reported as noninterest income in the Consolidated Statements of Income, aggregated less than $0.1 million during 2024 and 2023
82. 82Out-of-area time deposits consist of deposits obtained from depositors outside of our primary market areas exclusively through deposit brokers
83. 83NOTE 6 – DEPOSITS (Continued)
84. 84NOTE 7 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
85. 85NOTE 8 - FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES
86. 86NOTE 8 - FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES (Continued)
87. 87NOTE 9 - FEDERAL INCOME TAXES
88. 88NOTE 9 - FEDERAL INCOME TAXES (Continued)
89. 89The statutory tax rate was 21% for 2024, 2023 and 2022
90. 90NOTE 10 – STOCK-BASED COMPENSATION
91. 91In addition, stock grants to directors as retainer payments during the years 2020 through 2022 were from the Stock Incentive Plan of 2020, while stock grants to directors as retainer payments during 2024 and 2023 were from the Stock Incentive Plan of 2023
92. 92Of the restricted stock shares granted in 2023 and 2022, a total of 25,239 shares and 26,112 shares, respectively, 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
93. 93NOTE 11 – RELATED PARTIES
94. 94NOTE 12 – COMMITMENTS AND OFF-BALANCE-SHEET RISK
95. 95At year-end 2024 and 2023, the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties
96. 96Commitments to make commercial loans generally reflect our binding obligations to existing and prospective customers to extend credit, including line of credit facilities secured by accounts receivable and inventory, and term loans secured by either real estate or equipment
97. 97NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES
98. 98NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS
99. 99It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount
100. 100NOTE 16 – FAIR VALUE MEASUREMENTS
101. 101Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date
102. 102Level 3: Significant unobservable inputs that reflect our own estimates about the assumptions that market participants would use in pricing an asset or liability
103. 103NOTE 16 – FAIR VALUE MEASUREMENTS (Continued)
104. 104Assets and Liabilities Measured at Fair Value on a Recurring Basis
105. 105There were no sales, purchases or transfers in or out of Level 3 during 2024. The $0.1 million reduction in Level 3 municipal general obligation bonds during 2024 reflects the scheduled maturities of such bonds
106. 106Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
107. 107NOTE 17 – EARNINGS PER SHARE
108. 108NOTE 18 – VARIABLE INTEREST ENTITIES
109. 109NOTE 18 – VARIABLE INTEREST ENTITIES (Continued)
110. 110NOTE 19 – SUBORDINATED NOTES
111. 111NOTE 20 - REGULATORY MATTERS
112. 112NOTE 20 - REGULATORY MATTERS (Continued)
113. 113NOTE 20 – REGULATORY MATTERS (Continued)
114. 114NOTE 22 – SUBSEQUENT EVENTS
115. 115Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
116. 116President and Chief Executive Officer