10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to        .

Commission File No. 000-26719

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan	38-3360865
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

310 Leonard Street, NW, Grand Rapids, MI 49504

(Address of principal executive offices) (Zip Code)

(616) 406-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒       No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

  Yes  ☒       No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MBWM	The Nasdaq Stock Market LLC

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐     No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes ☐    No  ☒

At October 29, 2021, there were 15,670,645 shares of common stock outstanding.

MERCANTILE BANK CORPORATION

INDEX

PART I.	Financial Information	Page No.
	Item 1.    Financial Statements
	Consolidated Balance Sheets (Unaudited) – September 30, 2021 and December 31, 2020	1
	Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2021 and September 30, 2020	2
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2021 and September 30, 2020	3
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and Nine Months Ended September 30, 2021 and September 30, 2020	4
	Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2021 and September 30, 2020	8
	Notes to Consolidated Financial Statements (Unaudited)	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	76
	Item 4. Controls and Procedures	78
PART II.	Other Information
	Item 1. Legal Proceedings	79
	Item 1A. Risk Factors	79
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	79
	Item 3. Defaults Upon Senior Securities	79
	Item 4. Mine Safety Disclosures	79
	Item 5. Other Information	80
	Item 6. Exhibits	80
	Signatures	81

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2021			December 31, 2020
ASSETS
Cash and due from banks	$	83,804,000		$	62,832,000
Interest-earning deposits		741,557,000			563,174,000
Total cash and cash equivalents		825,361,000			626,006,000
Securities available for sale		559,564,000			387,347,000
Federal Home Loan Bank stock		18,002,000			18,002,000
Loans		3,313,709,000			3,193,470,000
Allowance for loan losses		(37,423,000	)		(37,967,000	)
Loans, net		3,276,286,000			3,155,503,000
Premises and equipment, net		57,465,000			58,959,000
Bank owned life insurance		72,963,000			72,131,000
Goodwill		49,473,000			49,473,000
Core deposit intangible, net		1,589,000			2,436,000
Mortgage loans held for sale		47,247,000			22,888,000
Other assets		56,462,000			44,599,000
Total assets	$	4,964,412,000		$	4,437,344,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	1,647,380,000		$	1,433,403,000
Interest-bearing		2,221,611,000			1,978,150,000
Total deposits		3,868,991,000			3,411,553,000
Securities sold under agreements to repurchase		175,850,000			118,365,000
Federal Home Loan Bank advances		394,000,000			394,000,000
Subordinated debentures		48,074,000			47,563,000
Accrued interest and other liabilities		25,219,000			24,309,000
Total liabilities		4,512,134,000			3,995,790,000
Commitments and contingent liabilities (Note 8)
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		0			0
Common stock, no par value; 40,000,000 shares authorized; 15,717,663 shares issued and outstanding at September 30, 2021 and 16,425,136 shares issued and outstanding at December 31, 2020		285,033,000			302,029,000
Retained earnings		167,541,000			134,039,000
Accumulated other comprehensive gain/(loss)		(296,000	)		5,486,000
Total shareholders’ equity		452,278,000			441,554,000
Total liabilities and shareholders’ equity	$	4,964,412,000		$	4,437,344,000

See accompanying notes to consolidated financial statements.

1

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended Sept 30, 2021		Three Months Ended Sept 30, 2020		Nine Months Ended Sept 30, 2021			Nine Months Ended Sept 30, 2020
Interest income
Loans, including fees	$	33,656,000	$	33,664,000	$	100,430,000		$	101,428,000
Securities, taxable		1,341,000		1,212,000		3,580,000			6,840,000
Securities, tax-exempt		600,000		576,000		1,795,000			1,714,000
Other interest-earning assets		291,000		142,000		642,000			711,000
Total interest income		35,888,000		35,594,000		106,447,000			110,693,000
Interest expense
Deposits		2,184,000		3,466,000		7,247,000			11,808,000
Short-term borrowings		46,000		38,000		122,000			132,000
Federal Home Loan Bank advances		2,072,000		2,072,000		6,149,000			6,499,000
Subordinated debentures and other borrowings		462,000		509,000		1,401,000			1,857,000
Total interest expense		4,764,000		6,085,000		14,919,000			20,296,000
Net interest income		31,124,000		29,509,000		91,528,000			90,397,000
Provision for loan losses		1,900,000		3,200,000		(900,000	)		11,550,000
Net interest income after provision for loan losses		29,224,000		26,309,000		92,428,000			78,847,000
Noninterest income
Service charges on deposit and sweep accounts		1,324,000		1,135,000		3,687,000			3,401,000
Mortgage banking income		6,554,000		9,479,000		23,049,000			19,746,000
Credit and debit card income		1,947,000		1,636,000		5,545,000			4,371,000
Interest rate swap fees		3,938,000		0		6,086,000			0
Payroll services income		412,000		399,000		1,374,000			1,346,000
Earnings on bank owned life insurance		298,000		290,000		872,000			933,000
Gain on sale of branch		0		0		1,058,000			0
Other income		1,095,000		368,000		1,916,000			1,042,000
Total noninterest income		15,568,000		13,307,000		43,587,000			30,839,000
Noninterest expense
Salaries and benefits		15,975,000		16,734,000		47,255,000			44,388,000
Occupancy		2,030,000		2,023,000		6,021,000			5,944,000
Furniture and equipment depreciation, rent and maintenance		929,000		871,000		2,719,000			2,500,000
Data processing costs		2,746,000		2,676,000		8,138,000			7,793,000
Other expense		4,530,000		4,119,000		13,386,000			11,954,000
Total noninterest expense		26,210,000		26,423,000		77,519,000			72,579,000
Income before federal income tax expense		18,582,000		13,193,000		58,496,000			37,107,000
Federal income tax expense		3,531,000		2,507,000		11,114,000			7,051,000
Net income	$	15,051,000	$	10,686,000	$	47,382,000		$	30,056,000
Basic earnings per share	$	0.95	$	0.66	$	2.95		$	1.85
Diluted earnings per share	$	0.95	$	0.66	$	2.95		$	1.85
Cash dividends per share	$	0.30	$	0.28	$	0.88		$	0.84
Average basic shares outstanding		15,859,955		16,233,196		16,084,806			16,265,208
Average diluted shares outstanding		15,860,314		16,233,666		16,085,274			16,265,986

See accompanying notes to consolidated financial statements.

2

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended Sept 30, 2021			Three Months Ended Sept 30, 2020			Nine Months Ended Sept 30, 2021			Nine Months Ended Sept 30, 2020
Net income	$	15,051,000		$	10,686,000		$	47,382,000		$	30,056,000
Other comprehensive income/(loss):
Unrealized holding gains/(losses) on securities available for sale		(2,281,000	)		(675,000	)		(7,318,000	)		2,352,000
Tax effect of unrealized holding gains/(losses) on securities available for sale		479,000			143,000			1,536,000			(494,000	)
Other comprehensive income/(loss), net of tax		(1,802,000	)		(532,000	)		(5,782,000	)		1,858,000
Comprehensive income	$	13,249,000		$	10,154,000		$	41,600,000		$	31,914,000

See accompanying notes to consolidated financial statements.

3

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

The following table depicts the change in shareholders’ equity for the three months ended September 30, 2021:

($ in thousands except per share amounts)	Preferred Stock		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, June 30, 2021	$	0	$	293,232		$	157,150		$	1,506		$	451,888
Employee stock purchase plan (404 shares)				13									13
Dividend reinvestment plan (7,904 shares)				237									237
Stock option exercises (2,000 shares)				50									50
Stock-based compensation expense				448									448
Share repurchase program (288,863 shares)				(8,947	)								(8,947	)
Cash dividends ($0.30 per common share)							(4,660	)					(4,660	)
Net income for the three months ended September 30, 2021							15,051						15,051
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect										(1,802	)		(1,802	)
Balances, September 30, 2021	$	0	$	285,033		$	167,541		$	(296	)	$	452,278

See accompanying notes to consolidated financial statements.

4

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

The following table depicts the change in shareholders’ equity for the nine months ended September 30, 2021:

($ in thousands except per share amounts)	Preferred Stock		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, January 1, 2021	$	0	$	302,029		$	134,039		$	5,486		$	441,554
Employee stock purchase plan (1,106 shares)				35									35
Dividend reinvestment plan (20,814 shares)				648									648
Stock grants to directors for retainer fees (10,489 shares)				344									344
Stock option exercises (2,000 shares)				50									50
Stock-based compensation expense				1,725									1,725
Share repurchase program (635,773 shares)				(19,798	)								(19,798	)
Cash dividends ($0.88 per common share)							(13,880	)					(13,880	)
Net income for the nine months ended September 30, 2021							47,382						47,382
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect										(5,782	)		(5,782	)
Balances, September 30, 2021	$	0	$	285,033		$	167,541		$	(296	)	$	452,278

See accompanying notes to consolidated financial statements.

5

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

The following table depicts the change in shareholders’ equity for the three months ended September 30, 2020:

($ in thousands except per share amounts)	Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, June 30, 2020	$	0	$	300,897	$	118,239		$	6,085		$	425,221
Employee stock purchase plan (692 shares)				12								12
Dividend reinvestment plan (10,327 shares)				206								206
Stock grants to directors for retainer fees (2,068 shares)				45								45
Stock-based compensation expense				736								736
Cash dividends ($0.28 per common share)						(4,474	)					(4,474	)
Net income for the three months ended September 30, 2020						10,686						10,686
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									(532	)		(532	)
Balances, September 30, 2020	$	0	$	301,896	$	124,451		$	5,553		$	431,900

See accompanying notes to consolidated financial statements.

6

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

The following table depicts the change in shareholders’ equity for the nine months ended September 30, 2020:

($ in thousands except per share amounts)	Preferred Stock		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balances, January 1, 2020	$	0	$	305,035		$	107,831		$	3,695	$	416,561
Employee stock purchase plan (1,821 shares)				37								37
Dividend reinvestment plan (27,707 shares)				610								610
Stock grants to directors for retainer fees (17,716 shares)				394								394
Stock-based compensation expense				2,102								2,102
Share repurchase program (222,385 shares)				(6,282	)							(6,282	)
Cash dividends ($0.84 per common share)							(13,436	)				(13,436	)
Net income for the nine months ended September 30, 2020							30,056					30,056
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect										1,858		1,858
Balances, September 30, 2020	$	0	$	301,896		$	124,451		$	5,553	$	431,900

See accompanying notes to consolidated financial statements.

7

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended Sept 30, 2021			Nine Months Ended Sept 30, 2020
Cash flows from operating activities
Net income	$	47,382,000		$	30,056,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		10,200,000			6,262,000
Accretion of acquired loans		(102,000	)		(337,000	)
Provision for loan losses		(900,000	)		11,550,000
Stock-based compensation expense		1,725,000			2,102,000
Stock grants to directors for retainer fee		344,000			394,000
Proceeds from sales of mortgage loans held for sale		509,763,000			505,602,000
Origination of mortgage loans held for sale		(510,571,000	)		(506,683,000	)
Net gain from sales of mortgage loans held for sale		(23,551,000	)		(20,055,000	)
Net gain from sales and valuation write-downs of foreclosed assets		(74,000	)		(183,000	)
Net (gain) loss from sales and valuation write-downs of former bank premises		243,000			(27,000	)
Net loss from sales and write-downs of fixed assets		246,000			54,000
Earnings on bank owned life insurance		(872,000	)		(933,000	)
Gain on sale of branch		(1,058,000	)		0
Net change in:
Accrued interest receivable		853,000			(1,080,000	)
Other assets		(15,369,000	)		(6,269,000	)
Accrued interest payable and other liabilities		910,000			(4,147,000	)
Net cash from operating activities		19,169,000			16,306,000
Cash flows from investing activities
Loan originations and payments, net		(129,522,000	)		(472,417,000	)
Purchases of securities available for sale		(257,967,000	)		(270,119,000	)
Proceeds from maturities, calls and repayments of securities available for sale		77,531,000			296,895,000
Proceeds from sales of foreclosed assets		181,000			313,000
Proceeds from sales of former bank premises		270,000			162,000
Net cash transferred in branch sale		(2,679,000	)		0
Net purchases of premises and equipment and lease activity		(4,250,000	)		(7,201,000	)
Net cash for investing activities		(316,436,000	)		(452,367,000	)

See accompanying notes to consolidated financial statements.

8

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Nine Months Ended Sept 30, 2021			Nine Months Ended Sept 30, 2020
Cash flows from financing activities
Net decrease in time deposits		(113,842,000	)		(65,389,000	)
Net increase in all other deposits		585,924,000			747,039,000
Net increase in securities sold under agreements to repurchase		57,485,000			54,342,000
Maturities of Federal Home Loan Bank advances		0			(20,000,000	)
Proceeds from Federal Home Loan Bank advances		0			60,000,000
Proceeds from stock option exercises		50,000			0
Employee stock purchase plan		35,000			37,000
Dividend reinvestment plan		648,000			610,000
Repurchases of common stock shares		(19,798,000	)		(6,282,000	)
Payment of cash dividends to common shareholders		(13,880,000	)		(13,436,000	)
Net cash from financing activities		496,622,000			756,921,000
Net change in cash and cash equivalents		199,355,000			320,860,000
Cash and cash equivalents at beginning of period		626,006,000			233,731,000
Cash and cash equivalents at end of period	$	825,361,000		$	554,591,000
Supplemental disclosures of cash flows information
Cash paid during the period for:
Interest	$	15,826,000		$	21,798,000
Federal income tax		14,450,000			7,950,000
Noncash financing and investing activities:
Transfers from loans to foreclosed assets		30,000			146,000
Transfers from bank premises to other real estate owned		0			179,000

See accompanying notes to consolidated financial statements.

9

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the nine months ended September 30, 2021 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s subsidiary Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. 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 September 30, 2021 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, 2020.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Coronavirus Pandemic: There remains a significant amount of stress and uncertainty across national and global economies due to the ongoing pandemic of coronavirus disease 2019 (“Covid-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “Coronavirus Pandemic”). This uncertainty is heightened as certain geographic areas continue to experience surges in Covid-19 cases and governments at all levels continue to react to changes in circumstances, including supply chain disruptions and inflationary pressures.

The Coronavirus Pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. We continue to occupy an asset-sensitive position, whereby interest rate environments characterized by numerous and/or high magnitude interest rate reductions have a negative impact on our net interest income and net income. Additionally, the consequences of the unprecedented economic impact of the Coronavirus Pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance and reduced net income.

The following section summarizes the primary measures that directly impact us and our customers.

● Paycheck Protection Program

The Paycheck Protection Program (“PPP”) reflects a substantial expansion of the Small Business Administration’s 100% guaranteed 7(a) loan program. The CARES Act authorized up to $350 billion in loans to businesses with fewer than 500 employees, including non-profit organizations, tribal business concerns, self-employed and individual contractors. The PPP provides 100% guaranteed loans to cover specific operating costs. PPP loans are eligible to be forgiven based upon certain criteria. In general, the amount of the loan that is forgivable is the sum of the payroll costs, interest payments on mortgages, rent and utilities incurred or paid by the business during a prescribed period beginning on the loan origination date. Any remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan. The interest rate on the loan is fixed at 1.00%, with the financial institution receiving a loan origination fee paid by the Small Business Administration. The loan origination fees, net of the direct origination costs, are accreted into interest income on loans using the level yield methodology. The program ended on August 8, 2020. We originated approximately 2,200 loans aggregating $553 million. As of September 30, 2021, we recorded forgiveness transactions on over 2,100 loans aggregating $550 million. Net loan origination fees of $3.7 million were recorded during the first nine months of 2021.

(Continued)

10

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Consolidated Appropriations Act, 2021 authorized an additional $284 billion in Second Draw PPP loans (“Second Draw”). The program ended on May 31, 2021. Under the Second Draw, we originated approximately 1,200 loans aggregating $209 million. As of September 30, 2021, we recorded forgiveness transactions on about 600 loans aggregating $95.9 million. Net loan origination fees of $4.8 million were recorded during the first nine months of 2021 under the Second Draw.

A PPP loan is assigned a risk weight of 0% under the risk-based capital rules of the federal banking agencies.

● Individual Economic Impact Payments

The Internal Revenue Service has made three rounds of Individual Economic Impact Payments via direct deposit or mailed checks. In general, and subject to adjusted gross income limitations, qualifying individuals have received payments of $1,200 in April 2020, $600 in January 2021 and $1,400 in March 2021.

● Troubled Debt Restructuring Relief

From March 1, 2020 through 60 days after the end of the National Emergency (or December 31, 2020 if earlier), a financial institution may elect to suspend GAAP principles and regulatory determinations with respect to loan modifications related to Covid-19 that would otherwise be categorized as troubled debt restructurings. Banking agencies must defer to the financial institution’s election. We elected to suspend GAAP principles and regulatory determinations as permitted. The Consolidated Appropriations Act, 2021 extended the suspension date to January 1, 2022.

● Current Expected Credit Loss Methodology Delay 

Financial institutions are not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the National Emergency or December 31, 2020. We elected to postpone CECL adoption as permitted. The Consolidated Appropriations Act, 2021 extended the adoption deferral date to January 1, 2022.

In early April 2020, in response to the early stages of the Coronavirus Pandemic and its pervasive impact across the economy and financial markets, we developed internal programs of loan payment deferments for commercial and retail borrowers. For commercial borrowers, we offered 90-day (three payments) interest only amendments as well as 90-day (three payments) principal and interest payment deferments. Under the latter program, borrowers were extended a 12-month single payment note at 0% interest in an amount equal to three payments, with loan proceeds used to make the scheduled payments. The single payment notes receive a loan grade equal to the loan grade of each respective borrowing relationship. Certain of our commercial loan borrowers subsequently requested and received an additional 90-day (three payments) interest only amendment or 90-day (three payments) principal and interest payment deferment. Under the latter program, the amount equal to the three payments was added to the original deferment note which has nine months remaining to maturity; however, the original 0% interest rate is modified to equal the rate associated with each borrower’s traditional lending relationship with us for the remainder of the term. At the peak of activity in mid-2020, nearly 750 borrowers with loan balances aggregating $719 million were participating in the commercial loan deferment program. As of September 30, 2021, we had no loans in the commercial loan deferment program.

For retail borrowers, we offered 90-day (three payments) principal and interest payment deferments, with deferred amounts added to the end of the loan. As of September 30, 2020, we had processed 260 principal and interest payment deferments with loan balances totaling $23.8 million. As of September 30, 2021, only six borrowers with loan balances aggregating $0.5 million remained in the retail loan payment deferment program.

(Continued) 

11

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. 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 260,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2021. In addition, stock options for approximately 3,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2021. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2021.

Approximately 255,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2020. In addition, stock options for approximately 2,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2020. Stock options for approximately 9,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2020.

Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other-than-temporary impairment (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

(Continued)

12

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of September 30, 2021 and December 31, 2020, we determined the fair value of our mortgage loans held for sale to be $49.1 million and $24.0 million, respectively.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make an interest rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income. Mortgage loans serviced for others totaled approximately $1.26 billion and $1.04 billion as of September 30, 2021, and December 31, 2020, respectively.

    Mortgage Banking Activities: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. 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. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

(Continued)

13

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

The federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” on March 22, 2020, which was subsequently revised on April 7, 2020. This guidance encourages financial institutions to work prudently with borrowers that are or may be unable to meet their contractual obligations because of the effects of the Coronavirus Pandemic. Pursuant to the guidance, the federal banking agencies concluded, in consultation with FASB staff, that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current prior to any relief are not troubled debt restructurings. This guidance complements Section 4013 of the CARES Act, which specified that Coronavirus-related modifications made on loans that were current as of December 31, 2019 and that occur between March 1, 2020 and the earlier of 60 days after the date of termination of the National Emergency declared by President Trump on March 13, 2020 (the “National Emergency”) or December 31, 2020, as applicable, are not troubled debt restructurings. As part of the Consolidated Appropriations Act that was enacted in late 2020, this guidance was extended to January 1, 2022.

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. We estimate credit losses based on individual loans determined to be impaired and on all other loans grouped on similar risk characteristics. Our historical loss component is generally the most significant of the allowance components and is based on historical loss experience by credit risk grade for commercial loans and payment status for mortgage and consumer loans. Loans are pooled based on similar risk characteristics supported by observable data. The historical loss experience component of the allowance represents the results of migration analysis of historical net charge-offs for portfolios of loans, including groups of commercial loans within each credit risk grade. For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected future losses to be realized from the pool of loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative environmental factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, competition, increasing interest rates, external factors, Coronavirus Pandemic environment, and other considerations. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

(Continued) 

14

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted. Loans made under PPP are fully guaranteed by the Small Business Administration; therefore, such loans do not have an associated allowance.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between the derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

(Continued)

15

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Core Deposit Intangible: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We may elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a ten-year period using the sum-of-the-years-digits methodology.

Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis (generally monthly) or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Adoption of New Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019.

(Continued) 

16

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted.

Hastings Branch Sale: As previously disclosed in a Current Report on Form 8-K filed on October 26, 2020, we entered into a Purchase and Assumption Agreement (“Agreement”) on October 21, 2020 regarding the sale of our Hastings, Michigan branch office to Lake Trust Credit Union (“Lake Trust”). All regulatory approvals were received and the sale was consummated on May 14, 2021. Under the terms of the Agreement, as amended on April 20, 2021, Lake Trust: 1) purchased $9.7 million in primarily residential mortgage loans at book balance; 2) purchased the branch facility at a price of $1.5 million; and 3) assumed all deposit accounts aggregating $14.6 million at a premium price of 5.0% of the book balance. In conjunction with the sale closing, we recorded a $0.7 million deposit premium and a $0.3 million gain on the sale of the branch facility.

Out-of-Period Adjustment: During the second quarter of 2021, a formula error was identified in the spreadsheet used to calculate and record the present values of right-to-use assets consisting of several banking offices along with various printer and copy machines. As a result, Premises and Equipment, Net and Other Liabilities on our Consolidated Balance Sheets were understated by $2.8 million and $2.7 million as of December 31, 2020 and March 31, 2021, respectively. There was no impact to our Consolidated Statements of Income. We evaluated the impact, both individually and in the aggregate, and determined these out-of-period adjustments were not material to our Consolidated Balance Sheets in the respective impacted periods.

(Continued)

17

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
U.S. Government agency debt obligations	$	368,990,000	$	350,000	$	(4,954,000	)	$	364,386,000
Mortgage-backed securities		39,299,000		698,000		(544,000	)		39,453,000
Municipal general obligation bonds		130,681,000		4,207,000		(278,000	)		134,610,000
Municipal revenue bonds		20,468,000		327,000		(180,000	)		20,615,000
Other investments		500,000		0		0			500,000
	$	559,938,000	$	5,582,000	$	(5,956,000	)	$	559,564,000
December 31, 2020
U.S. Government agency debt obligations	$	242,522,000	$	516,000	$	(897,000	)	$	242,141,000
Mortgage-backed securities		23,869,000		1,021,000		0			24,890,000
Municipal general obligation bonds		101,991,000		5,833,000		0			107,824,000
Municipal revenue bonds		11,521,000		473,000		(2,000	)		11,992,000
Other investments		500,000		0		0			500,000
	$	380,403,000	$	7,843,000	$	(899,000	)	$	387,347,000

Securities with unrealized losses at September 30, 2021 and December 31, 2020, 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				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. Government agency debt obligations	$	274,190,000	$	3,974,000	$	48,317,000	$	980,000	$	322,507,000	$	4,954,000
Mortgage-backed securities		23,578,000		544,000		23,000		0		23,601,000		544,000
Municipal general obligation bonds		32,180,000		278,000		0		0		32,180,000		278,000
Municipal revenue bonds		11,098,000		158,000		820,000		22,000		11,918,000		180,000
	$	341,046,000	$	4,954,000	$	49,160,000	$	1,002,000	$	390,206,000	$	5,956,000

(Continued)

18

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES (Continued)

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2020
U.S. Government agency debt obligations	$	118,650,000	$	897,000	$	0	$	0	$	118,650,000	$	897,000
Mortgage-backed securities		0		0		0		0		0		0
Municipal general obligation bonds		0		0		0		0		0		0
Municipal revenue bonds		423,000		2,000		0		0		423,000		2,000
	$	119,073,000	$	899,000	$	0	$	0	$	119,073,000	$	899,000

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. 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 September 30, 2021, 291 debt securities with fair values totaling $390 million had unrealized losses aggregating $6.0 million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at September 30, 2021, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

(Continued)

19

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.    SECURITIES (Continued)

	Weighted Average Yield			Amortized Cost		Fair Value
Due in 2021		2.25	%	$	545,000	$	547,000
Due in 2022 through 2026		1.01			187,220,000		188,005,000
Due in 2027 through 2031		1.56			266,478,000		265,719,000
Due in 2032 and beyond		1.98			65,896,000		65,340,000
Mortgage-backed securities		1.76			39,299,000		39,453,000
Other investments		3.75			500,000		500,000
Total available for sale securities		1.44	%	$	559,938,000	$	559,564,000

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $148 million and $109 million at September 30, 2021 and December 31, 2020, respectively, with estimated market values of $153 million and $116 million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of $2.7 million and $4.1 million at September 30, 2021 and December 31, 2020, respectively, with estimated market values of $2.7 million and $4.2 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations that are pledged to secure repurchase agreements was $176 million and $118 million at September 30, 2021 and December 31, 2020, respectively. Investments in Federal Home Loan Bank stock are restricted and may only be resold or redeemed by the issuer.

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

(Continued)

20

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Our total loans at September 30, 2021 were $3.31 billion compared to $3.19 billion at December 31, 2020, an increase of $120 million, or 3.8%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2021 and December 31, 2020, and the percentage change in loans from the end of 2020 to the end of the third quarter of 2021, are as follows:

											Percent
	September 30, 2021					December 31, 2020					Increase
	Balance		%			Balance		%			(Decrease)
Commercial:
Commercial and industrial (1)	$	1,074,394,000		32.4	%	$	1,145,423,000		35.9	%		(6.2	%)
Vacant land, land development, and residential construction		38,380,000		1.2			55,055,000		1.7			(30.3	)
Real estate – owner occupied		551,762,000		16.7			529,953,000		16.6			4.1
Real estate – non-owner occupied		998,697,000		30.1			917,436,000		28.7			8.9
Real estate – multi-family and residential rental		179,126,000		5.4			146,095,000		4.6			22.6
Total commercial		2,842,359,000		85.8			2,793,962,000		87.5			1.7
Retail:
Home equity and other		59,732,000		1.8			61,620,000		1.9			(3.1	)
1-4 family mortgages		411,618,000		12.4			337,888,000		10.6			21.8
Total retail		471,350,000		14.2			399,508,000		12.5			18.0
Total loans	$	3,313,709,000		100.0	%	$	3,193,470,000		100.0	%		3.8	%

(1) Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

Nonperforming loans as of September 30, 2021 and December 31, 2020 were as follows:

	September 30, 2021		December 31, 2020
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,766,000		3,384,000
Total nonperforming loans	$	2,766,000	$	3,384,000

(Continued) 

21

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The recorded principal balance of nonperforming loans was as follows:

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	673,000	$	172,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		0		619,000
Real estate – non-owner occupied		0		22,000
Real estate – multi-family and residential rental		0		0
Total commercial		673,000		813,000
Retail:
Home equity and other		142,000		242,000
1-4 family mortgages		1,951,000		2,329,000
Total retail		2,093,000		2,571,000
Total nonperforming loans	$	2,766,000	$	3,384,000

An age analysis of past due loans is as follows as of September 30, 2021:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	0	$	0	$	44,000	$	44,000	$	1,074,350,000	$	1,074,394,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		38,380,000		38,380,000		0
Real estate – owner occupied		0		0		0		0		551,762,000		551,762,000		0
Real estate – non-owner occupied		0		0		0		0		998,697,000		998,697,000		0
Real estate – multi-family and residential rental		0		0		0		0		179,126,000		179,126,000		0
Total commercial		0		0		44,000		44,000		2,842,315,000		2,842,359,000		0
Retail:
Home equity and other		103,000		11,000		35,000		149,000		59,583,000		59,732,000		0
1-4 family mortgages		315,000		363,000		224,000		902,000		410,716,000		411,618,000		0
Total retail		418,000		374,000		259,000		1,051,000		470,299,000		471,350,000		0
Total past due loans	$	418,000	$	374,000	$	303,000	$	1,095,000	$	3,312,614,000	$	3,313,709,000	$	0

(Continued)

22

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

An age analysis of past due loans is as follows as of December 31, 2020:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	261,000	$	172,000	$	0	$	433,000	$	1,144,990,000	$	1,145,423,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		55,055,000		55,055,000		0
Real estate – owner occupied		0		197,000		421,000		618,000		529,335,000		529,953,000		0
Real estate – non-owner occupied		0		0		23,000		23,000		917,413,000		917,436,000		0
Real estate – multi-family and residential rental		0		0		0		0		146,095,000		146,095,000		0
Total commercial		261,000		369,000		444,000		1,074,000		2,792,888,000		2,793,962,000		0
Retail:
Home equity and other		112,000		65,000		54,000		231,000		61,389,000		61,620,000		0
1-4 family mortgages		1,147,000		247,000		342,000		1,736,000		336,152,000		337,888,000		0
Total retail		1,259,000		312,000		396,000		1,967,000		397,541,000		399,508,000		0
Total past due loans	$	1,520,000	$	681,000	$	840,000	$	3,041,000	$	3,190,429,000	$	3,193,470,000	$	0

(Continued) 

23

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired loans as of September 30, 2021, and average impaired loans for the three and nine months ended September 30, 2021, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	2,900,000	$	2,843,000		$	2,759,000	$	3,836,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		12,674,000		12,674,000			12,674,000		13,374,000
Real estate – non-owner occupied		0		0			0		163,000
Real estate – multi-family and residential rental		92,000		92,000			46,000		23,000
Total commercial		15,666,000		15,609,000			15,479,000		17,396,000
Retail:
Home equity and other		1,291,000		1,208,000			1,223,000		1,093,000
1-4 family mortgages		3,496,000		2,285,000			2,256,000		2,403,000
Total retail		4,787,000		3,493,000			3,479,000		3,496,000
Total with no related allowance recorded	$	20,453,000	$	19,102,000		$	18,958,000	$	20,892,000

(Continued)

24

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	2,802,000	$	2,802,000	$	449,000	$	2,888,000	$	1,617,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		775,000		775,000		89,000		994,000		813,000
Real estate – non-owner occupied		151,000		151,000		6,000		152,000		156,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		3,728,000		3,728,000		544,000		4,034,000		2,586,000
Retail:
Home equity and other		182,000		163,000		142,000		197,000		232,000
1-4 family mortgages		416,000		416,000		79,000		472,000		569,000
Total retail		598,000		579,000		221,000		669,000		801,000
Total with an allowance recorded	$	4,326,000	$	4,307,000	$	765,000	$	4,703,000	$	3,387,000
Total impaired loans:
Commercial	$	19,394,000	$	19,337,000	$	544,000	$	19,513,000	$	19,982,000
Retail		5,385,000		4,072,000		221,000		4,148,000		4,297,000
Total impaired loans	$	24,779,000	$	23,409,000	$	765,000	$	23,661,000	$	24,279,000

(Continued)

25

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired loans as of December 31, 2020, and average impaired loans for the three and nine months ended September 30, 2020, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	6,242,000	$	6,242,000		$	7,416,000	$	8,282,000
Vacant land, land development and residential construction		0		0			326,000		234,000
Real estate – owner occupied		14,782,000		14,593,000			3,645,000		3,053,000
Real estate – non-owner occupied		341,000		341,000			309,000		199,000
Real estate – multi-family and residential rental		0		0			0		3,000
Total commercial		21,365,000		21,176,000			11,696,000		11,771,000
Retail:
Home equity and other		1,072,000		987,000			1,305,000		1,273,000
1-4 family mortgages		4,455,000		2,575,000			2,505,000		2,415,000
Total retail		5,527,000		3,562,000			3,810,000		3,688,000
Total with no related allowance recorded	$	26,892,000	$	24,738,000		$	15,506,000	$	15,459,000

(Continued)

26

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	343,000	$	343,000	$	53,000	$	940,000	$	1,128,000
Vacant land, land development and residential construction		0		0		0		0		96,000
Real estate – owner occupied		763,000		734,000		77,000		436,000		538,000
Real estate – non-owner occupied		162,000		162,000		8,000		168,000		84,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		1,268,000		1,239,000		138,000		1,544,000		1,846,000
Retail:
Home equity and other		300,000		283,000		241,000		470,000		455,000
1-4 family mortgages		698,000		698,000		172,000		653,000		569,000
Total retail		998,000		981,000		413,000		1,123,000		1,024,000
Total with an allowance recorded	$	2,266,000	$	2,220,000	$	551,000	$	2,667,000	$	2,870,000
Total impaired loans:
Commercial	$	22,633,000	$	22,415,000	$	138,000	$	13,240,000	$	13,617,000
Retail		6,525,000		4,543,000		413,000		4,933,000		4,712,000
Total impaired loans	$	29,158,000	$	26,958,000	$	551,000	$	18,173,000	$	18,329,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated fair value. Interest income recognized on accruing troubled debt restructurings totaled $0.4 million and $0.2 million during the third quarters of 2021 and 2020, respectively, and $1.2 million and $0.8 million during the first nine months of 2021 and 2020, respectively. No interest income was recognized on nonaccrual loans during the third quarter and first nine months of 2021 or during the respective 2020 periods. Lost interest income on nonaccrual loans totaled less than $0.1 million and $0.1 million during the third quarters of 2021 and 2020, respectively, and $0.1 million and $0.2 million during the first nine months of 2021 and 2020, respectively.

(Continued)

27

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of September 30, 2021:

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	706,369,000	$	23,336,000	$	324,000,000	$	450,779,000	$	104,531,000
Grades 5 – 7		364,529,000		14,941,000		212,733,000		534,165,000		74,439,000
Grades 8 – 9		3,496,000		103,000		15,029,000		13,753,000		156,000
Total commercial	$	1,074,394,000	$	38,380,000	$	551,762,000	$	998,697,000	$	179,126,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	59,590,000	$	409,667,000
Nonperforming		142,000		1,951,000
Total retail	$	59,732,000	$	411,618,000

(1) Included in Commercial and Industrial Loans Grades 1 – 4 are $116 million of loans originated under the Paycheck Protection Program.

(Continued)

28

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit quality indicators were as follows as of December 31, 2020:

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	828,706,000	$	22,547,000	$	315,134,000	$	396,700,000	$	91,711,000
Grades 5 – 7		306,614,000		32,398,000		185,541,000		520,395,000		54,111,000
Grades 8 – 9		10,103,000		110,000		29,278,000		341,000		273,000
Total commercial	$	1,145,423,000	$	55,055,000	$	529,953,000	$	917,436,000	$	146,095,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	61,378,000	$	335,559,000
Nonperforming		242,000		2,329,000
Total retail	$	61,620,000	$	337,888,000

(1) Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program.

(Continued)

29

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

All commercial loans are graded using the following criteria:

Grade 1. “Exceptional”  Loans with this rating contain very little, if any, risk.

Grade 2. “Outstanding”  Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements.

Grade 3. “Very Good”  Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable.

Grade 4. “Good”  Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest.

Grade 5. “Acceptable”  Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are loans for which repayment risks are satisfactory.

Grade 6. “Monitor”  Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report.

Grade 7. “Special Mention”  Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Grade 8. “Substandard”  Loans with this rating are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Grade 9. “Doubtful”  Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable.

Grade 10. “Loss”  Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted.

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

(Continued)

30

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and nine months ended September 30, 2021 are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2021	$	32,092,000		$	3,636,000		$	185,000	$	35,913,000
Provision for loan losses		1,859,000			41,000			0		1,900,000
Charge-offs		(690,000	)		(53,000	)		0		(743,000	)
Recoveries		221,000			132,000			0		353,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Allowance for loan losses:
Balance at December 31, 2020	$	33,779,000		$	4,129,000		$	59,000	$	37,967,000
Provision for loan losses		(271,000	)		(755,000	)		126,000		(900,000	)
Charge-offs		(771,000	)		(94,000	)		0		(865,000	)
Recoveries		745,000			476,000			0		1,221,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Ending balance: individually evaluated for impairment	$	544,000		$	221,000		$	0	$	765,000
Ending balance: collectively evaluated for impairment	$	32,938,000		$	3,535,000		$	185,000	$	36,658,000
Total loans (*):
Ending balance	$	2,726,706,000		$	471,350,000				$	3,198,056,000
Ending balance: individually evaluated for impairment	$	19,337,000		$	4,072,000				$	23,409,000
Ending balance: collectively evaluated for impairment	$	2,707,369,000		$	467,278,000				$	3,174,647,000

(*) Excludes $116 million in loans originated under the Paycheck Protection Program.

(Continued)

31

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses for loans during the three and nine months ended September 30, 2020 and the recorded investments in loans as of December 31, 2020 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2020	$	27,962,000		$	4,224,000		$	60,000		$	32,246,000
Provision for loan losses		3,499,000			(266,000	)		(33,000	)		3,200,000
Charge-offs		(45,000	)		(78,000	)		0			(123,000	)
Recoveries		194,000			55,000			0			249,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Allowance for loan losses:
Balance at December 31, 2019	$	21,070,000		$	2,749,000		$	70,000		$	23,889,000
Provision for loan losses		10,539,000			1,054,000			(43,000	)		11,550,000
Charge-offs		(360,000	)		(139,000	)		0			(499,000	)
Recoveries		361,000			271,000			0			632,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Ending balance: individually evaluated for impairment	$	480,000		$	430,000		$	0		$	910,000
Ending balance: collectively evaluated for impairment	$	31,130,000		$	3,505,000		$	27,000		$	34,662,000
Total loans (*):
Ending balance	$	2,428,703,000		$	399,508,000					$	2,828,211,000
Ending balance: individually evaluated for impairment	$	22,415,000		$	4,543,000					$	26,958,000
Ending balance: collectively evaluated for impairment	$	2,406,288,000		$	394,965,000					$	2,801,253,000

(*) Excludes $365 million in loans originated under the Paycheck Protection Program.

(Continued)

32

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended September 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	186,000	$	185,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		3		279,000		278,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total retail		0		0		0
Total loans		3	$	279,000	$	278,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		10	$	3,017,000	$	3,016,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		692,000		692,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		12		3,802,000		3,801,000
Retail:
Home equity and other		4		485,000		482,000
1-4 family mortgages		2		46,000		46,000
Total retail		6		531,000		528,000
Total loans		18	$	4,333,000	$	4,329,000

(Continued)

33

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended September 30, 2020 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	7,000	$	7,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		56,000		56,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		5		634,000		634,000
Retail:
Home equity and other		5		82,000		83,000
1-4 family mortgages		2		68,000		67,000
Total retail		7		150,000		150,000
Total loans		12	$	784,000	$	784,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2020 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		8	$	6,485,000	$	6,491,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		7		3,508,000		2,906,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		17		10,564,000		9,968,000
Retail:
Home equity and other		14		422,000		423,000
1-4 family mortgages		3		88,000		87,000
Total retail		17		510,000		510,000
Total loans		34	$	11,074,000	$	10,478,000

(Continued)

34

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2021 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2021 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

(Continued)

35

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2020 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2020 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		31,000
Total retail		1		31,000
Total		1	$	31,000

(Continued) 

36

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for loans categorized as troubled debt restructurings during the three months ended September 30, 2021 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	5,563,000		$	0	$	13,888,000		$	153,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(75,000	)		0		(439,000	)		(2,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		184,000			0		0			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,396,000		$	699,000
Charge-Offs		0			0
Payments		(91,000	)		(51,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	1,305,000		$	648,000

(Continued)

37

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for loans categorized as troubled debt restructurings during the nine months ended September 30, 2021 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	6,414,000		$	0	$	14,797,000		$	480,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(3,596,000	)		0		(2,034,000	)		(329,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		2,854,000			0		686,000			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,146,000		$	806,000
Charge-Offs		0			0
Payments		(323,000	)		(204,000	)
Transfers to ORE		0			0
Net Additions/Deletions		482,000			46,000
Ending Balance	$	1,305,000		$	648,000

(Continued)

38

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for loans categorized as troubled debt restructurings during the three months ended September 30, 2020 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	10,067,000		$	80,000		$	3,791,000		$	170,000		$	1,000
Charge-Offs		0			0			0			0			0
Payments		(3,537,000	)		(80,000	)		(827,000	)		(4,000	)		(1,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		7,000			0			55,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,715,000		$	715,000
Charge-Offs		0			0
Payments		(220,000	)		(17,000	)
Transfers to ORE		0			0
Net Additions/Deletions		82,000			69,000
Ending Balance	$	1,577,000		$	767,000

(Continued)

39

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for loans categorized as troubled debt restructurings during the nine months ended September 30, 2020 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	8,587,000		$	85,000		$	1,145,000		$	178,000		$	7,000
Charge-Offs		0			0			0			0			0
Payments		(8,512,000	)		(85,000	)		(1,836,000	)		(12,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		6,462,000			0			3,710,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,415,000		$	724,000
Charge-Offs		0			0
Payments		(423,000	)		(46,000	)
Transfers to ORE		0			0
Net Additions/Deletions		585,000			89,000
Ending Balance	$	1,577,000		$	767,000

(Continued)

40

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The allowance related to loans categorized as troubled debt restructurings was as follows:

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	311,000	$	53,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		89,000		59,000
Real estate – non-owner occupied		6,000		8,000
Real estate – multi-family and residential rental		0		0
Total commercial		406,000		120,000
Retail:
Home equity and other		113,000		202,000
1-4 family mortgages		79,000		145,000
Total retail		192,000		347,000
Total related allowance	$	598,000	$	467,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal. We believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

(Continued) 

41

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.    PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	September 30, 2021		December 31, 2020
Land and improvements	$	15,097,000	$	16,533,000
Buildings		55,579,000		56,114,000
Furniture and equipment		22,231,000		21,522,000
		92,907,000		94,169,000
Less: accumulated depreciation		35,442,000		35,210,000
Premises and equipment, net	$	57,465,000	$	58,959,000

Depreciation expense totaled $1.5 million and $1.3 million during the third quarters of 2021 and 2020, respectively. Depreciation expense totaled $4.3 million during the first nine months of 2021, compared to $3.8 million during the first nine months of 2020.

5.    DEPOSITS

Our total deposits at September 30, 2021 totaled $3.87 billion, an increase of $457 million, or 13.4%, from December 31, 2020. The components of our outstanding balances at September 30, 2021 and December 31, 2020, and percentage change in deposits from the end of 2020 to the end of the third quarter of 2021, are as follows:

	September 30, 2021					December 31, 2020					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	1,647,380,000		42.6	%	$	1,433,403,000		42.0	%		14.9	%
Interest-bearing checking		535,983,000		13.9			473,053,000		13.9			13.3
Money market		854,763,000		22.1			611,912,000		17.9			39.7
Savings		392,298,000		10.1			338,070,000		9.9			16.0
Time, under $100,000		139,031,000		3.6			165,548,000		4.9			(16.0	)
Time, $100,000 and over		275,623,000		7.1			342,633,000		10.0			(19.6	)
Total local deposits		3,845,078,000		99.4			3,364,619,000		98.6			14.3
Out-of-area time, $100,000 and over		23,913,000		0.6			46,934,000		1.4			(49.0	)
Total deposits	$	3,868,991,000		100.0	%	$	3,411,553,000		100.0	%		13.4	%

Total time deposits of more than $250,000 totaled $202 million and $272 million at September 30, 2021 and December 31, 2020, respectively.

(Continued) 

42

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Nine Months Ended September 30, 2021			Twelve Months Ended December 31, 2020
Outstanding balance at end of period	$	175,850,000		$	118,365,000
Average interest rate at end of period		0.11	%		0.12	%
Average daily balance during the period	$	151,522,000		$	132,880,000
Average interest rate during the period		0.11	%		0.12	%
Maximum daily balance during the period	$	195,570,000		$	173,186,000

Repurchase agreements generally have original maturities of less than one year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

7.     FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled $394 million at September 30, 2021 and December 31, 2020, and were expected to mature at varying dates from November 2021 through June 2027, with fixed rates of interest from 0.55% to 3.18% and averaging 2.06% as of both dates.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. 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 September 30, 2021 totaled $760 million, with remaining availability based on collateral equaling $360 million.

Maturities of currently outstanding FHLBI advances are as follows:

2021	$	20,000,000
2022		94,000,000
2023		80,000,000
2024		80,000,000
2025		50,000,000
Thereafter		70,000,000

(Continued) 

43

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.     COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and recorded as a liability. There was no liability balance for these instruments as of September 30, 2021 and December 31, 2020.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at September 30, 2021 and December 31, 2020 follows:

	September 30, 2021		December 31, 2020
Commercial unused lines of credit	$	1,080,801,000	$	1,019,496,000
Unused lines of credit secured by 1 – 4 family residential properties		60,859,000		59,396,000
Credit card unused lines of credit		88,013,000		72,495,000
Other consumer unused lines of credit		61,047,000		30,707,000
Commitments to make loans		253,124,000		227,558,000
Standby letters of credit		29,375,000		20,543,000
	$	1,573,219,000	$	1,430,195,000

(Continued) 

44

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.  DERIVATIVES AND HEDGING ACTIVITIES

We are exposed to certain risks arising from both business operations and economic conditions. We principally manage the exposure to a wide variety of operational risks through core business activities. Economic risks, including interest rate, liquidity and credit risk, are primarily administered via the amount, sources and duration of assets and liabilities. Derivative financial instruments may also be used to assist in managing economic risks.

Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. We execute interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent bank are recognized directly to earnings.

The estimated fair values of derivative instruments as of September 30, 2021 are reflected in the following table.

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	214,368,000	Other Assets	$	5,031,000
Derivative Liabilities
Interest rate swaps		214,368,000	Other Liabilities		5,250,000

The effect of interest rate swaps that are not designated as hedging instruments resulted in noninterest expense of $0.2 million during the first nine months of 2021.

The estimated fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $5.3 million as of September 30, 2021. Cash collateral totaling $4.6 million was provided to the counterparty correspondent bank as of September 30, 2021.

Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $214 million as of September 30, 2021. Associated credit exposure is generally mitigated by securing the interest rates swaps with the underlying collateral of the loan instrument that has been hedged.

The estimated fair values of derivative instruments as of December 31, 2020 are reflected in the following table.

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	33,731,000	Other Assets	$	1,003,000
Derivative Liabilities
Interest rate swaps		33,731,000	Other Liabilities		1,027,000

(Continued) 

45

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.  DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The effect of interest rate swaps that are not designated as hedging instruments resulted in noninterest expense of less than $0.1 million during the year-ended December 31, 2020.

The estimated fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $1.0 million as of December 31, 2020. Cash collateral totaling $1.1 million was provided to the counterparty correspondent bank as of December 31, 2020.

Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $33.7 million as of December 31, 2020. Associated credit exposure is generally mitigated by securing the interest rates swaps with the underlying collateral of the loan instrument that has been hedged.

10.  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 September 30, 2021 and December 31, 2020 (dollars in thousands):

	Level in	September 30, 2021				December 31, 2020
	Fair Value Hierarchy	Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash	Level 1	$	17,709	$	17,709	$	16,953	$	16,953
Cash equivalents	Level 2		807,652		807,652		609,053		609,053
Securities available for sale	(1)		559,564		559,564		387,347		387,347
FHLBI stock	(2)		18,002		18,002		18,002		18,002
Loans, net	Level 3		3,276,286		3,386,378		3,155,503		3,294,522
Mortgage loans held for sale	Level 2		47,247		49,107		22,888		24,029
Mortgage servicing rights	Level 2		11,146		14,321		8,189		10,006
Accrued interest receivable	Level 2		9,986		9,986		10,861		10,861
Financial liabilities:
Deposits	Level 2		3,868,991		3,949,449		3,411,553		3,397,768
Repurchase agreements	Level 2		175,850		175,850		118,365		118,365
FHLBI advances	Level 2		394,000		406,002		394,000		410,881
Subordinated debentures	Level 2		48,074		47,980		47,563		47,574
Accrued interest payable	Level 2		1,406		1,406		2,313		2,313

(1) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount.

(Continued)

46

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. Fair value for loans is based on an exit price model as required by ASU 2016-01, taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. Fair value for deposit accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The fair values of subordinated debentures and FHLBI advances are based on current rates for similar financing. The fair value of off-balance sheet items is estimated to be nominal.

11.  FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability. 

(Continued)

47

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, and municipal general obligation and revenue bonds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. 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 September 30, 2021 or December 31, 2020. We have no Level 1 securities available for sale.

Derivatives. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves.

Mortgage loans held for sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of September 30, 2021 and December 31, 2020, we determined the fair value of our mortgage loans held for sale to be $49.1 million and $24.0 million, respectively.

Loans. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off. The fair values of impaired loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

(Continued)

48

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

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 September 30, 2021 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	364,386,000	$	0	$	364,386,000	$	0
Mortgage-backed securities		39,453,000		0		39,453,000		0
Municipal general obligation bonds		134,610,000		0		133,893,000		717,000
Municipal revenue bonds		20,615,000		0		20,615,000		0
Other investments		500,000		0		500,000		0
Total	$	559,564,000	$	0	$	558,847,000	$	717,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during the first nine months of 2021. The less than $0.1 million reduction in Level 3 municipal general obligation bonds during the first nine months of 2021 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, 2020 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	242,141,000	$	0	$	242,141,000	$	0
Mortgage-backed securities		24,890,000		0		24,890,000		0
Municipal general obligation bonds		107,824,000		0		107,058,000		766,000
Municipal revenue bonds		11,992,000		0		11,992,000		0
Other investments		500,000		0		500,000		0
Total	$	387,347,000	$	0	$	386,581,000	$	766,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during 2020.

(Continued)

49

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

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 September 30, 2021 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	4,286,000	$	0	$	0	$	4,286,000
Foreclosed assets		111,000		0		0		111,000
Total	$	4,397,000	$	0	$	0	$	4,397,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2020 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,880,000	$	0	$	0	$	2,880,000
Foreclosed assets		701,000		0		0		701,000
Total	$	3,581,000	$	0	$	0	$	3,581,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a 15% to 25% discount factor for commercial-related properties, and a 25% to 50% discount factor for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

(Continued)

50

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.  REGULATORY MATTERS

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. At September 30, 2021 and December 31, 2020, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since September 30, 2021 that we believe have changed our bank’s categorization.

Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total capital (to risk weighted assets)
Consolidated	$	484,594		12.5	%	$	310,930		8.0	%	$	NA		NA
Bank		482,625		12.4			310,796		8.0			388,495		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		448,010		11.5			233,197		6.0			NA		NA
Bank		445,202		11.5			233,097		6.0			310,796		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		402,010		10.3			174,898		4.5			NA		NA
Bank		445,202		11.5			174,823		4.5			252,522		6.5
Tier 1 capital (to average assets)
Consolidated		448,010		9.3			192,098		4.0			NA		NA
Bank		445,202		9.3			192,031		4.0			240,039		5.0

(Continued)

51

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.  REGULATORY MATTERS (Continued)

December 31, 2020
Total capital (to risk weighted assets)
Consolidated	$	468,113	13.8	%	$	271,325	8.0	%	$	NA	NA
Bank		457,203	13.5			271,196	8.0			338,995	10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		430,146	12.7			203,494	6.0			NA	NA
Bank		419,236	12.4			203,397	6.0			271,196	8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		384,658	11.3			152,621	4.5			NA	NA
Bank		419,236	12.4			152,548	4.5			220,347	6.5
Tier 1 capital (to average assets)
Consolidated		430,146	9.8			176,053	4.0			NA	NA
Bank		419,236	9.5			175,999	4.0			219,999	5.0

Our consolidated capital levels as of September 30, 2021 and December 31, 2020 include $46.0 million and $45.5 million, respectively, of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. 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 September 30, 2021 and December 31, 2020, all $46.0 million and $45.5 million, respectively, 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. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. 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 September 30, 2021, our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

(Continued)

52

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.  REGULATORY MATTERS (Continued)

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 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that was paid on March 17, 2021 to shareholders of record as of March 5, 2021. On April 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that was paid on June 16, 2021 to shareholders of record as of June 4, 2021. On July 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that was paid on September 15, 2021 to shareholders of record as of September 3, 2021. On October 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that will be paid on December 15, 2021 to shareholders of record as of December 3, 2021.

In May 2021, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This program replaces a similar $20.0 million program that had been announced in May 2019 that was nearing exhaustion. During the first nine months of 2021, we repurchased a total of approximately 636,000 shares at a total price of $19.8 million, at an average price per share of $31.14. Availability under the repurchase plan totaled $8.4 million as of September 30, 2021. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank.

53

MERCANTILE BANK CORPORATION

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

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

Future Factors include, among others, adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates; significant declines in the value of commercial real estate; market volatility; demand for products and services; the degree of competition by traditional and non-traditional financial service companies; changes in banking regulation or actions by bank regulators; changes in the method of determining Libor and the phase out of Libor; changes in tax laws; changes in accounting principles and interpretations; changes in prices, levies, and assessments; potential increases of federal deposit insurance premium expense, and possible future special assessments of Federal Deposit Insurance Corporation premiums, either industry wide or specific to our bank; the impact of technological advances; risks associated with cyber-attacks, information security breaches and other criminal activities; governmental and regulatory policy changes; our participation in the Paycheck Protection Program administered by the Small Business Administration; litigation liabilities; actions of the Federal Reserve Board; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client expectations and other facts; changes in the national and local economies, including the significant disruption to financial market and other economic activity caused by the outbreak and continuance of the Coronavirus Pandemic; and risk factors described in our annual report on Form 10-K for the year ended December 31, 2020, our March 31, 2021 Form 10-Q, our June 30, 2021 Form 10-Q or in this report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Introduction

The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Bank of Michigan (“our bank”) and our bank’s subsidiary, Mercantile Insurance Center, Inc. (“our insurance company”), at September 30, 2021 and December 31, 2020 and the results of operations for the three months and nine months ended September 30, 2021 and September 30, 2020. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to “us,” “we,” “our” or “the company” include Mercantile Bank Corporation and its consolidated subsidiaries referred to above.

Critical Accounting Policies 

GAAP is complex and requires us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting policies, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2020 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

54

MERCANTILE BANK CORPORATION

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is maintained at a level we believe is adequate to absorb probable incurred losses identified and inherent in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Loan losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. Loans made under the Paycheck Protection Program are fully guaranteed by the Small Business Administration; therefore, such loans do not have an associated allowance.

The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Impairment is evaluated on an individual loan basis. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The timing of obtaining outside appraisals varies, generally depending on the nature and complexity of the property being evaluated, general breadth of activity within the marketplace and the age of the most recent appraisal. For collateral dependent impaired loans, in most cases we obtain and use the “as is” value as indicated in the appraisal report, adjusting for any expected selling costs. In certain circumstances, we may internally update outside appraisals based on recent information impacting a particular or similar property, or due to identifiable trends (e.g., recent sales of similar properties) within our markets. The expected future cash flows exclude potential cash flows from certain guarantors. To the extent these guarantors provide repayments, a recovery would be recorded upon receipt. Loans are evaluated for impairment when payments are delayed, typically 30 days or more, or when serious deficiencies are identified within the credit relationship. Our policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. We put loans into nonaccrual status when the full collection of principal and interest is not expected.

Financial institutions were not required to comply with the Current Expected Credit Loss (“CECL”) methodology requirements from the enactment date of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for an extension of the required CECL adoption date to January 1, 2022, which is the date we expect to adopt. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted.

55

MERCANTILE BANK CORPORATION

Income Tax Accounting: Current income tax assets and liabilities are established for the amount of taxes payable or refundable for the current year. In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income tax laws for which the outcome may be uncertain. We periodically review and evaluate the status of our tax positions and make adjustments as necessary. Deferred income tax assets and liabilities are also established for the future tax consequences of events that have been recognized in our financial statements or tax returns. A deferred income tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences that can be carried forward (used) in future years. The valuation of our net deferred income tax asset is considered critical as it requires us to make estimates based on provisions of the enacted tax laws. The assessment of the realizability of the net deferred income tax asset involves the use of estimates, assumptions, interpretations and judgments concerning accounting pronouncements, federal and state tax codes and the extent of future taxable income. There can be no assurance that future events, such as court decisions, positions of federal and state tax authorities, and the extent of future taxable income will not differ from our current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

Accounting guidance requires that we assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, we consider both positive and negative evidence and analyze changes in near-term market conditions as well as other factors which may impact future operating results. Significant weight is given to evidence that can be objectively verified.

Securities and Other Financial Instruments: Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities classified as available for sale are reported at their fair value. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Fair values for securities available for sale are obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the current fair value of securities is recorded as a valuation adjustment and reported in other comprehensive income.

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

Goodwill: GAAP requires us to determine the fair value of all of the assets and liabilities of an acquired entity, and record their fair value on the date of acquisition. We employ a variety of means in determination of the fair value, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculation of the value. In other cases, where the value is not easily determined, we consult with outside parties to determine the fair value of the asset or liability. Once valuations have been adjusted, the net difference between the price paid for the acquired company and the value of its balance sheet is recorded as goodwill.

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed if conditions in the market place or changes in the company’s organizational structure occur.

56

MERCANTILE BANK CORPORATION

Coronavirus Pandemic

There remains a significant amount of stress and uncertainty across national and global economies due to the ongoing pandemic of coronavirus disease 2019 (“Covid-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “Coronavirus Pandemic”). This uncertainty is heightened as certain geographic areas continue to experience surges in Covid-19 cases and governments at all levels continue to react to changes in circumstances, including supply chain disruptions and inflationary pressures.

The Coronavirus Pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. We continue to occupy an asset-sensitive position, whereby interest rate environments characterized by numerous and/or high magnitude interest rate reductions have a negative impact on our net interest income and net income. Additionally, the consequences of the unprecedented economic impact of the Coronavirus Pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance and reduced net income.

The following section summarizes the primary measures that directly impact us and our customers.

● Paycheck Protection Program

The Paycheck Protection Program (“PPP”) reflects a substantial expansion of the Small Business Administration’s 100% guaranteed 7(a) loan program. The CARES Act authorized up to $350 billion in loans to businesses with fewer than 500 employees, including non-profit organizations, tribal business concerns, self-employed and individual contractors. The PPP provides 100% guaranteed loans to cover specific operating costs. PPP loans are eligible to be forgiven based upon certain criteria. In general, the amount of the loan that is forgivable is the sum of the payroll costs, interest payments on mortgages, rent and utilities incurred or paid by the business during a prescribed period beginning on the loan origination date. Any remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan. The interest rate on the loan is fixed at 1.00%, with the financial institution receiving a loan origination fee paid by the Small Business Administration. The loan origination fees, net of the direct origination costs, are accreted into interest income on loans using the level yield methodology. The program ended on August 8, 2020. We originated approximately 2,200 loans aggregating $553 million. As of September 30, 2021, we recorded forgiveness transactions on over 2,100 loans aggregating $550 million. Net loan origination fees of $3.7 million were recorded during the first nine months of 2021.

The Consolidated Appropriations Act, 2021 authorized an additional $284 billion in Second Draw PPP loans (“Second Draw”). The program ended on May 31, 2021. Under the Second Draw, we originated approximately 1,200 loans aggregating $209 million. As of September 30, 2021, we recorded forgiveness transactions on about 600 loans aggregating $95.9 million. Net loan origination fees of $4.8 million were recorded during the first nine months of 2021 under the Second Draw.

A PPP loan is assigned a risk weight of 0% under the risk-based capital rules of the federal banking agencies.

● Individual Economic Impact Payments

The Internal Revenue Service has made three rounds of Individual Economic Impact Payments via direct deposit or mailed checks. In general, and subject to adjusted gross income limitations, qualifying individuals have received payments of $1,200 in April 2020, $600 in January 2021 and $1,400 in March 2021.

57

MERCANTILE BANK CORPORATION

● Troubled Debt Restructuring Relief

From March 1, 2020 through 60 days after the end of the National Emergency (or December 31, 2020 if earlier), a financial institution may elect to suspend GAAP principles and regulatory determinations with respect to loan modifications related to Covid-19 that would otherwise be categorized as troubled debt restructurings. Banking agencies must defer to the financial institution’s election. We elected to suspend GAAP principles and regulatory determinations as permitted. The Consolidated Appropriations Act, 2021 extended the suspension date to January 1, 2022.

● Current Expected Credit Loss Methodology Delay 

Financial institutions are not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the National Emergency or December 31, 2020. We elected to postpone CECL adoption as permitted. The Consolidated Appropriations Act, 2021 extended the adoption deferral date to January 1, 2022.

In early April 2020, in response to the early stages of the Coronavirus Pandemic and its pervasive impact across the economy and financial markets, we developed internal programs of loan payment deferments for commercial and retail borrowers. For commercial borrowers, we offered 90-day (three payments) interest only amendments as well as 90-day (three payments) principal and interest payment deferments. Under the latter program, borrowers were extended a 12-month single payment note at 0% interest in an amount equal to three payments, with loan proceeds used to make the scheduled payments. The single payment notes receive a loan grade equal to the loan grade of each respective borrowing relationship. Certain of our commercial loan borrowers subsequently requested and received an additional 90-day (three payments) interest only amendment or 90-day (three payments) principal and interest payment deferment. Under the latter program, the amount equal to the three payments was added to the original deferment note which has nine months remaining to maturity; however, the original 0% interest rate is modified to equal the rate associated with each borrower’s traditional lending relationship with us for the remainder of the term. At the peak of activity in mid-2020, nearly 750 borrowers with loan balances aggregating $719 million were participating in the commercial loan payment deferment program. As of September 30, 2021, we had no loans in the commercial loan payment deferment program.

For retail borrowers, we offered 90-day (three payments) principal and interest payment deferments, with deferred amounts added to the end of the loan. As of September 30, 2020, we had processed 260 principal and interest payment deferments with loan balances totaling $23.8 million. As of September 30, 2021, only six borrowers with loan balances aggregating $0.5 million remained in the retail loan payment deferment program.

Financial Overview

We reported net income of $15.1 million, or $0.95 per diluted share, for the third quarter of 2021, compared to net income of $10.7 million, or $0.66 per diluted share, during the third quarter of 2020. Net income for the first nine months of 2021 totaled $47.4 million, or $2.95 per diluted share, compared to $30.1 million, or $1.85 per diluted share, during the first nine months of 2020.

Commercial loans increased $48.4 million during the first nine months of 2021, reflecting the combined net growth of core commercial loans and net activity under the PPP. Core commercial loans increased $298 million, or approximately 16% on an annualized basis, during the first nine months of 2021. Net PPP loans declined $249 million during the first nine months of 2021, comprised of $209 million in PPP loans extended and $458 million in forgiveness transactions. As a percentage of total commercial loans, commercial and industrial loans (excluding PPP loans) and owner occupied commercial real estate (“CRE”) loans combined equaled 55.4% as of September 30, 2021, compared to 53.9% at December 31, 2020. The new commercial loan pipeline remains strong, and at September 30, 2021, we had $155 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

58

MERCANTILE BANK CORPORATION

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling 0.08% of total loans as of September 30, 2021. Accruing loans past due 30 to 89 days remain very low. Gross loan charge-offs totaled $0.7 million during the third quarter of 2021, and aggregated $0.9 million for the first nine months of the year, while recoveries of prior period loan charge-offs equaled $0.4 million and $1.2 million during the respective time periods. A net loan recovery, as a percentage of average total loans, equaled an annualized 0.01% during the first nine months of 2021.

We recorded a loan loss provision expense of $1.9 million during the third quarter of 2021, compared to a provision expense of $3.2 million during the third quarter of 2020. We recorded a negative loan loss provision expense of $0.9 million during the first nine months of 2021, compared to a provision expense of $11.6 million during the first nine months of 2020. The provision expense recorded during the third quarter of 2021 mainly reflected growth in core commercial loans, while the prior-year third quarter expense was primarily comprised of increased reserve allocations associated with the downgrading of certain non-impaired commercial loan relationships to reflect stressed economic conditions stemming from the Coronavirus Pandemic. The negative provision expense recorded during the first nine months of 2021 largely reflected reserve allocations necessitated by core commercial loan growth that were more than fully mitigated by a lower reserve allocation associated with the economic and business conditions environmental factor that was upgraded during the second quarter reflecting improvement in both current and forecasted economic conditions. The provision expense during the first nine months of 2020 was primarily comprised of increased reserve allocations associated with the downgrades of the economic and business conditions environmental factor, the introduction of a Covid-19 pandemic environmental factor and the aforementioned third quarter 2020 commercial loan downgrades.

Interest-earning balances, primarily consisting of funds deposited at the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity. During the first nine months of 2021, the average balance of these funds equaled $649 million, or 14.6% of average earning assets, compared to $288 million, or 7.7% of average earning assets, during the first nine months of 2020, and a more typical $93.8 million, or 2.8% of average earning assets, during the first nine months of 2019. The elevated level during 2020 and year-to-date 2021 primarily reflects increased local deposits stemming from federal government stimulus payments and reduced business and consumer investing and spending. The excess level of funds on deposit with the Federal Reserve Bank of Chicago had a negative impact of 40 basis points to 45 basis points on our net interest margin during the third quarter and first nine months of 2021.

Total local deposits increased $480 million during the first nine months of 2021, and are up $1.3 billion since year-end 2019, equating to growth rates of about 14% and 50%, respectively. Approximately 50% of the local deposit increase during the first nine months of 2021 and the last 21 months is comprised of increased noninterest-bearing checking account balances.

Net interest income increased $1.6 million during the third quarter of 2021 compared to the third quarter of 2020, and was up $1.1 million during the first nine months of 2021 compared to the first nine months of 2020. Both interest income and interest expense were impacted during the 2021 periods compared to the prior-year periods primarily by the Federal Open Market Committee’s (“FOMC”) federal funds rate cuts totaling 150 basis points in March of 2020 and a low interest rate environment since that time; however, growth in earning assets, especially core commercial loans, has provided for the increase in net interest income. Interest income increased $0.3 million during the third quarter of 2021 from the third quarter of 2020, but was down $4.2 million during the first nine months of 2021 compared to the first nine months of 2020. During the same time periods, interest expense was down $1.3 million and $5.4 million, respectively.

Noninterest income during the third quarter of 2021 was $15.6 million, compared to $13.3 million during the prior-year third quarter. Noninterest income during the first nine months of 2021 was $43.6 million, compared to $30.8 million during the same time period in 2020. The improved levels mainly resulted from ongoing strength in our mortgage banking function and fee income generated from a commercial lending interest rate swap program that was introduced in the latter part of 2020. In addition, a gain on the sale of a branch totaling $1.1 million was recorded during the second quarter of 2021.

59

MERCANTILE BANK CORPORATION

Noninterest expense during the third quarter of 2021 was $26.2 million, compared to $26.4 million during the prior-year third quarter. Noninterest expense during the first nine months of 2021 was $77.5 million, compared to $72.6 million during the same time period in 2020. About 60% of the increase in the year-to-date overhead costs reside in salary and benefits, with almost one-half of that figure being comprised of increased medical insurance costs. The remaining portion is primarily comprised of increased Federal Deposit Insurance Corporation (“FDIC”) insurance costs and former facility valuation write-downs.

Financial Condition

Our total assets increased $527 million during the first nine months of 2021, and totaled $4.96 billion as of September 30, 2021. Total loans increased $120 million, securities available for sale were up $172 million and interest-earning deposits grew by $178 million, while total deposits increased $457 million and sweep accounts were up $57.5 million, during the first nine months of 2021.

Commercial loans increased $48.4 million during the first nine months of 2021, and at September 30, 2021 totaled $2.84 billion, or 85.8% of the loan portfolio. As of December 31, 2020, the commercial loan portfolio comprised 87.5% of total loans. The increase in commercial loans reflects the combined net growth of core commercial loans and net activity under the PPP. Core commercial loans increased $298 million, or approximately 16% on an annualized basis, while PPP loans declined $249 million, comprised of $209 million in PPP loans extended and $458 million in forgiveness transactions, during the first nine months of 2021. Core commercial and industrial loans increased $178 million, non-owner occupied CRE loans grew $81.3 million, owner occupied CRE loans were up $21.8 million and multi-family and residential rental property loans increased $33.0 million, while vacant land, land development and residential construction loans declined $16.7 million. As a percentage of total commercial loans, commercial and industrial loans (excluding PPP loans) and owner occupied CRE loans combined equaled 55.4% as of September 30, 2021, compared to 53.9% at December 31, 2020.

As of September 30, 2021, availability on existing construction and development loans totaled $155 million, with most of those funds expected to be drawn over the next 12 to 18 months. Our current pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including $253 million in new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial lenders also report ongoing additional opportunities they are currently discussing with existing and potential new borrowers. 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.

Residential mortgage loans increased $73.7 million during the first nine months of 2021, totaling $412 million, or 12.4% of total loans, as of September 30, 2021. Activity within the residential mortgage loan function was very active during the first nine months of 2021, primarily reflecting refinance transactions spurred by low residential mortgage loan interest rates, strength in home purchase activity, and the continuing success of strategic initiatives that have been implemented over the past several years to gain market share and increase production. We originated $742 million in residential mortgage loans during the first nine months of 2021, an increase of almost 15% compared to originations during the first nine months of 2020. The production composition during the first nine months of 2021 was almost equal between purchase and refinance residential mortgage loans; however, the mix changed significantly during the second and third quarters compared to the first quarter. Refinance residential mortgage loans comprised approximately 67% of production during the first three months of 2021, but dropped to about 39% during the second quarter and approximately 45% during the third quarter. Residential mortgage loans originated for sale, generally consisting of longer-term fixed rate residential mortgage loans, during the first nine months of 2021 totaled $514 million, or approximately 69% of total residential mortgage loans originated. During the first nine months of 2020, residential mortgage loans originated for sale totaled $512 million, or about 79% of total mortgage loans originated. Residential mortgage loans originated not sold are generally comprised of adjustable rate residential mortgage loans. We are pleased with the results of our strategic initiatives associated with the growth of our residential mortgage banking operation over the past few years, and remain optimistic that origination volumes will remain solid in future periods.

60

MERCANTILE BANK CORPORATION

Other consumer-related loans declined $1.9 million during the first nine months of 2021, and at September 30, 2021 totaled $59.7 million, or 1.8% of total loans. Other consumer-related loans comprised 1.9% of total loans as of December 31, 2020. We expect this loan portfolio segment to decline in future periods as scheduled principal payments exceed anticipated new loan origination volumes.

The following table summarizes our loan portfolio over the past twelve months:

	9/30/21		6/30/21		3/31/21		12/31/20		9/30/20
Commercial:
Commercial & Industrial	$	1,074,394,000	$	1,103,807,000	$	1,284,507,000	$	1,145,423,000	$	1,321,419,000
Land Development & Construction		38,380,000		43,111,000		58,738,000		55,055,000		50,941,000
Owner Occupied Commercial RE		551,762,000		550,504,000		544,342,000		529,953,000		549,364,000
Non-Owner Occupied Commercial RE		998,697,000		950,993,000		932,334,000		917,436,000		878,897,000
Multi-Family & Residential Rental		179,126,000		161,894,000		147,294,000		146,095,000		137,740,000
Total Commercial		2,842,359,000		2,810,309,000		2,967,215,000		2,793,962,000		2,938,361,000
Retail:
1-4 Family Mortgages		411,618,000		380,292,000		337,844,000		337,888,000		348,460,000
Home Equity & Other Consumer Loans		59,732,000		58,240,000		59,311,000		61,620,000		63,723,000
Total Retail		471,350,000		438,532,000		397,155,000		399,508,000		412,183,000
Total	$	3,313,709,000	$	3,248,841,000	$	3,364,370,000	$	3,193,470,000	$	3,350,544,000

(*) Includes $116 million, $246 million, $455 million, $365 million, and $555 million in loans originated under the Paycheck Protection Program for September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and September 30, 2020, respectively.

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

Nonperforming assets, comprised of nonaccrual loans, loans past due 90 days or more and accruing interest and foreclosed properties, totaled $2.9 million (0.1% of total assets) as of September 30, 2021, compared to $4.1 million (0.1% of total assets) as of December 31, 2020. Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with the manageable and steady level of watch list credits and what we believe are strong credit administration practices, we remain pleased with the overall quality of the loan portfolio.

61

MERCANTILE BANK CORPORATION

The following tables provide a breakdown of nonperforming assets by collateral type:

NONPERFORMING LOANS
	9/30/21		6/30/21		3/31/21		12/31/20		9/30/20
Residential Real Estate:
Land Development	$	33,000	$	34,000	$	34,000	$	35,000	$	36,000
Construction		0		0		0		0		198,000
Owner Occupied / Rental		2,052,000		2,096,000		2,294,000		2,519,000		2,399,000
		2,085,000		2,130,000		2,328,000		2,554,000		2,633,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		0		0		283,000		619,000		1,262,000
Non-Owner Occupied		0		0		0		22,000		23,000
		0		0		283,000		641,000		1,285,000
Non-Real Estate:
Commercial Assets		673,000		606,000		169,000		172,000		198,000
Consumer Assets		8,000		10,000		13,000		17,000		25,000
		681,000		616,000		182,000		189,000		223,000
Total	$	2,766,000	$	2,746,000	$	2,793,000	$	3,384,000	$	4,141,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS
	9/30/21		6/30/21		3/31/21		12/31/20		9/30/20
Residential Real Estate:
Land Development	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		11,000		41,000		11,000		88,000		198,000
		11,000		41,000		11,000		88,000		198,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		100,000		363,000		363,000		613,000		314,000
Non-Owner Occupied		0		0		0		0		0
		100,000		363,000		363,000		613,000		314,000
Non-Real Estate:
Commercial Assets		0		0		0		0		0
Consumer Assets		0		0		0		0		0
		0		0		0		0		0
Total	$	111,000	$	404,000	$	374,000	$	701,000	$	512,000

62

MERCANTILE BANK CORPORATION

The following tables provide a reconciliation of nonperforming assets:

NONPERFORMING LOANS RECONCILIATION
	3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr
	2021			2021			2021			2020			2020
Beginning balance	$	2,746,000		$	2,793,000		$	3,384,000		$	4,141,000		$	3,212,000
Additions, net of transfers to ORE		361,000			492,000			116,000			538,000			1,301,000
Returns to performing status		(50,000	)		0			(115,000	)		0			(72,000	)
Principal payments		(291,000	)		(484,000	)		(559,000	)		(1,064,000	)		(249,000	)
Loan charge-offs		0			(55,000	)		(33,000	)		(231,000	)		(51,000	)
Total	$	2,766,000		$	2,746,000		$	2,793,000		$	3,384,000		$	4,141,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS RECONCILIATION
	3rd Qtr			2nd Qtr		1st Qtr			4th Qtr			3rd Qtr
	2021			2021		2021			2020			2020
Beginning balance	$	404,000		$	374,000	$	701,000		$	512,000		$	198,000
Additions		0			30,000		0			434,000			314,000
Sale proceeds		(209,000	)		0		(77,000	)		(245,000	)		0
Valuation write-downs		(84,000	)		0		(250,000	)		0			0
Total	$	111,000		$	404,000	$	374,000		$	701,000		$	512,000

Gross loan charge-offs totaled $0.7 million during the third quarter of 2021, and aggregated $0.9 million for the first nine months of the year, while recoveries of prior period loan charge-offs equaled $0.4 million and $1.2 million during the respective time periods. Net loan charge-offs, as a percentage of average total loans, equaled an annualized 0.05% during the third quarter of 2021, while a net loan recovery, as a percentage of average total loans, equaled 0.01% during the first nine months of 2021. 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. The allowance equaled $37.4 million, or 1.13% of total loans (1.17% of total loans excluding PPP loans), and over 1,300% of nonperforming loans as of September 30, 2021.

In each accounting period, we adjust the allowance to the amount we believe is necessary to maintain the allowance at an adequate level. Through the loan review and credit departments, we establish portions of the allowance based on specifically identifiable problem loans. The evaluation of the allowance is further based on, but not limited to, consideration of the internally prepared allowance analysis, loan loss migration analysis, composition of the loan portfolio, third party analysis of the loan administration processes and portfolio, and general economic conditions.

63

MERCANTILE BANK CORPORATION

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for an extension of the required CECL adoption date to January 1, 2022, which is the date we plan to adopt. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted.

The allowance analysis applies reserve allocation factors to non-impaired outstanding loan balances, the result of which is combined with specific reserves to calculate an overall allowance dollar amount. For non-impaired commercial loans, reserve allocation factors are based on the loan ratings as determined by our standardized grade paradigms and by loan purpose. Our commercial loan portfolio is segregated into five classes: 1) commercial and industrial loans; 2) vacant land, land development and residential construction loans; 3) owner occupied real estate loans; 4) non-owner occupied real estate loans; and 5) multi-family and residential rental property loans. The reserve allocation factors are primarily based on the historical trends of net loan charge-offs through a migration analysis whereby net loan losses are tracked via assigned grades over various time periods, with adjustments made for environmental factors reflecting the current status of, or recent changes in, items such as: lending policies and procedures; economic conditions; nature and volume of the loan portfolio; experience, ability and depth of management and lending staff; volume and severity of past due, nonaccrual and adversely classified loans; effectiveness of the loan review program; value of underlying collateral; loan concentrations; and other external factors such as competition and regulatory environment.

We established a Covid-19 reserve allocation factor to address the Coronavirus Pandemic and its potential impact on the collectability of the loan portfolio during the second quarter of 2020. The creation of this factor reflected our belief that the traditional nine environmental factors did not sufficiently capture and address the unique circumstances, challenges and uncertainties associated with the Coronavirus Pandemic, which include unprecedented federal government stimulus and interventions, supply chain disruptions, statewide mandatory closures on nonessential businesses and periodic changes to such, and our ability to provide payment deferral programs to commercial and retail borrowers without the interjection of troubled debt restructuring accounting rules. We review a myriad of items assessing this new environmental factor, including virus infection rates, vaccine inoculation trends, economic outlooks, employment data, business closures, foreclosures, payment deferments and government-sponsored stimulus programs.

We recorded a loan loss provision expense of $1.9 million during the third quarter of 2021, compared to a provision expense of $3.2 million during the third quarter of 2020. We recorded a negative loan loss provision expense of $0.9 million during the first nine months of 2021, compared to a provision expense of $11.6 million during the first nine months of 2020. The provision expense recorded during the third quarter of 2021 mainly reflected growth in core commercial loans, while the prior-year third quarter expense was primarily comprised of increased reserve allocations associated with the downgrading of certain non-impaired commercial loan relationships to reflect stressed economic conditions stemming from the Coronavirus Pandemic. The negative provision expense recorded during the first nine months of 2021 largely reflected reserve allocations necessitated by core commercial loan growth that were more than fully mitigated by a lower reserve allocation associated with the economic and business conditions environmental factor that was upgraded during the second quarter reflecting improvement in both current and forecasted economic conditions. The provision expense during the first nine months of 2020 was primarily comprised of increased reserve allocations associated with the downgrades of the economic and business conditions environmental factor, the introduction of a Covid-19 pandemic environmental factor and the aforementioned third quarter 2020 commercial loan downgrades.

Adjustments for specific lending relationships, particularly impaired loans, are made on a case-by-case basis. Non-impaired retail loan reserve allocations are determined in a similar fashion as those for non-impaired commercial loans, except that retail loans are segmented by type of credit and not a grading system. We regularly review the allowance analysis and make needed adjustments based upon identifiable trends and experience.

64

MERCANTILE BANK CORPORATION

A migration analysis is completed quarterly to assist us in determining appropriate reserve allocation factors for non-impaired commercial loans. Our migration analysis takes into account various time periods, with most weight placed on the time frame from December 31, 2010 through September 30, 2021. We believe this time period represents an appropriate range of economic conditions, and that it provides for an appropriate basis in determining reserve allocation factors given current economic conditions and the general consensus of economic conditions in the near future. We are actively monitoring our loan portfolio and assessing reserve allocation factors in light of the Coronavirus Pandemic and its impact on the U.S. economic environment and our customers in particular.

Although the migration analysis provides a historical accounting of our net loan losses, it is not able to fully account for environmental factors that will also very likely impact the collectability of our commercial loans as of any quarter-end date. Therefore, we incorporate the environmental factors as adjustments to the historical data. Environmental factors include both internal and external items. We believe the most significant internal environmental factor is our credit culture and the relative aggressiveness in assigning and revising commercial loan risk ratings, with the most significant external environmental factor being the assessment of the current economic environment and the resulting implications on our commercial loan portfolio.

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

As of September 30, 2021, the allowance was comprised of $36.6 million in general reserves relating to non-impaired loans and $0.8 million in specific reserves on other loans, primarily accruing loans designated as troubled debt restructurings. Troubled debt restructurings totaled $21.3 million at September 30, 2021, consisting of $0.8 million that are on nonaccrual status and $20.5 million that are on accrual status. The latter, while considered and accounted for as impaired loans in accordance with accounting guidelines, are not included in our nonperforming loan totals. Impaired loans with an aggregate carrying value of $0.6 million as of September 30, 2021 had been subject to previous partial charge-offs aggregating $0.5 million over the past eleven years. As of September 30, 2021, there were no specific reserves allocated to impaired loans that had been subject to a previous partial charge-off.

The following table provides a breakdown of our loans categorized as troubled debt restructurings:

	9/30/21		6/30/21		3/31/21		12/31/20		9/30/20
Performing	$	20,518,000	$	20,840,000	$	19,606,000	$	23,133,000	$	11,522,000
Nonperforming		782,000		859,000		431,000		510,000		1,113,000
Total	$	21,300,000	$	21,699,000	$	20,037,000	$	23,643,000	$	12,635,000

Although we believe the allowance is adequate to absorb loan losses in our originated loan portfolio as they arise, there can be no assurance, especially given the current uncertainties related to the Coronavirus Pandemic and its impact on the U.S. economic environment, 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.

65

MERCANTILE BANK CORPORATION

Securities available for sale increased $172 million during the first nine months of 2021, totaling $560 million as of September 30, 2021. Purchases of U.S. Government agency bonds totaled $188 million during the first nine months of 2021, in part reflecting the reinvestment of proceeds from called U.S. Government agency bonds that totaled $61.9 million. Purchases of U.S. Government agency guaranteed mortgage-backed securities totaled $24.4 million during the first nine months of 2021, consisting of investments in CRA-qualified securities, in part reflecting the reinvestment of $8.8 million from principal paydowns on U.S. Government agency guaranteed mortgage-backed securities. Purchases of municipal bonds totaled $45.3 million during the first nine months of 2021; proceeds from matured and called municipal bonds totaled $6.8 million. At September 30, 2021, the portfolio was comprised of U.S. Government agency bonds (65%), municipal bonds (28%) and U.S. Government agency issued or guaranteed mortgage-backed securities (7%). 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 at September 30, 2021 totaled $560 million, including a net unrealized loss of $0.4 million. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect purchases during the remainder of 2021 to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at about 12% of total assets.

FHLBI stock totaled $18.0 million as of September 30, 2021, unchanged from the balance at December 31, 2020. Our investment in FHLBI stock is necessary to engage in their 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.

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

Interest-earning balances, primarily consisting of funds deposited at the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity. During the first nine months of 2021, the average balance of these funds equaled $649 million, or 14.6% of average earning assets, compared to $288 million, or 7.7% of average earning assets, during the first nine months of 2020, and a more typical $93.8 million, or 2.8% of average earning assets, during the first nine months of 2019. The elevated level during 2020 and year-to-date 2021 primarily reflects increased local deposits stemming from federal government stimulus payments and reduced business and consumer investing and spending. The excess level of funds on deposit with the Federal Reserve Bank of Chicago had a negative impact of 40 basis points to 45 basis points on our net interest margin during the third quarter and first nine months of 2021.

Net premises and equipment equaled $57.5 million at September 30, 2021, representing a decrease of $1.5 million during the first nine months of 2021. An aggregate increase of $6.3 million stems from facility remodeling and new lease activities, while a decline of $3.5 million was recorded from the sale of a branch facility (along with the associated loans and deposits) to another financial institution and the sale of a former branch facility. Depreciation expense totaled $4.3 million during the first nine months of 2021. Foreclosed and repossessed assets equaled $0.1 million as of September 30, 2021, a reduction of $0.6 million from December 31, 2020.

Total deposits increased $457 million during the first nine months of 2021, totaling $3.87 billion at September 30, 2021. Local deposits increased $480 million, while out-of-area deposits decreased $23.0 million. As a percentage of total deposits, out-of-area deposits equaled 0.6% as of September 30, 2021, compared to 1.4% as of December 31, 2020.

66

MERCANTILE BANK CORPORATION

Noninterest-bearing checking accounts and interest-bearing checking accounts increased $214 million and $62.9 million, respectively, during the first nine months of 2021, in large part reflecting federal government stimulus, especially the PPP, as well as lower business investing and spending. Money market deposit account balances increased $243 million during the first nine months of 2021, of which $129 million was during the third quarter. Generally, the growth reflects federal government stimulus programs and lower business and consumer investing and spending; however, we believe a large portion of the growth during the third quarter, primarily comprised of additional deposits by a few existing account holders, are temporary and will be withdrawn over the next three months to six months. Savings deposits were up $54.2 million, primarily reflecting the impact of federal government stimulus programs and lower consumer investing and spending. Local time deposits decreased $93.5 million during the first nine months of 2021, primarily reflecting the maturity and withdrawal of funds from certain public unit time deposits and time deposits that were opened as part of a special time deposit campaign we ran during early 2019. The reduction in out-of-area deposits during the first nine months of 2021 reflects maturities during the period that were not replaced as the funds were no longer needed.

Total local deposits have increased $1.3 billion since December 31, 2019. Noninterest-bearing checking accounts have grown $722 million during this time period, while interest-bearing checking accounts and money market deposit accounts are up $204 million and $345 million, respectively. The increases in these transactional deposit products largely reflect federal government stimulus programs, especially the PPP, as well as lower business investing and spending. Savings deposits are up $123 million, primarily reflecting the impact of federal government stimulus programs and lower consumer investing and spending.

Sweep accounts increased $57.5 million during the first nine months of 2021, totaling $176 million as of September 30, 2021. The aggregate balance of this funding type can be subject to relatively large fluctuations given the nature of the customers utilizing this product and the sizable balances of many of the customers. The average balance of sweep accounts equaled $152 million during the first nine months of 2021, with a high balance of $196 million and low balance of $113 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into over-night interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance, and are accounted for as secured borrowings.

FHLBI advances aggregated $394 million as of September 30, 2021, unchanged from the year-end 2020 balance. The advances are collateralized by residential mortgage loans, first mortgage liens on multi-family property loans, first mortgage liens on commercial real estate loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of September 30, 2021 totaled $760 million, with remaining availability based on collateral equaling $360 million.

Shareholders’ equity was $452 million at September 30, 2021, compared to $442 million at December 31, 2020. The $10.7 million increase during the first nine months of 2021 primarily reflects the positive impact of net income totaling $47.4 million, partially offset by the negative impact of cash dividends and common stock repurchases totaling $13.9 million and $19.8 million, respectively. Reflecting an increase in market interest rates, the change in net unrealized holding gain/loss on securities available for sale, net of tax effect, had a $5.8 million negative impact on shareholders’ equity during the first nine months of 2021.

Liquidity

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

To assist in providing needed funds, we have regularly obtained monies from wholesale funding sources. Wholesale funds, primarily comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $418 million, or 9.4% of combined deposits and borrowed funds, as of September 30, 2021, compared to $441 million, or 11.2% of combined deposits and borrowed funds, as of December 31, 2020.

67

MERCANTILE BANK CORPORATION

Sweep accounts increased $57.5 million during the first nine months of 2021, totaling $176 million as of September 30, 2021. The aggregate balance of this funding type can be subject to relatively large fluctuations given the nature of the customers utilizing this product and the sizable balances of many of the customers. The average balance of sweep accounts equaled $152 million during the first nine months of 2021, with a high balance of $196 million and low balance of $113 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into over-night interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance, and are accounted for as secured borrowings.

Information regarding repurchase agreements as of September 30, 2021 and during the first nine months of 2021 is as follows:

Outstanding balance at September 30, 2021	$	175,850,000
Weighted average interest rate at September 30, 2021		0.11	%
Maximum daily balance nine months ended September 30, 2021	$	195,570,000
Average daily balance for nine months ended September 30, 2021	$	151,522,000
Weighted average interest rate for nine months ended September 30, 2021		0.11	%

FHLBI advances aggregated $394 million as of September 30, 2021, unchanged from the year-end 2020 balance. The advances are collateralized by residential mortgage loans, first mortgage liens on multi-family property loans, first mortgage liens on commercial real estate loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of September 30, 2021 totaled $760 million, with remaining availability based on collateral equaling $360 million.

We also have the ability to borrow up to $70.0 million on a daily basis through correspondent banks using established unsecured federal funds purchased lines of credit. We did not access the lines of credit during the first nine months of 2021. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $609 million during the first nine months of 2021. 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 $34.9 million as of September 30, 2021. We did not utilize this line of credit during the first nine months of 2021 or at any time during the previous twelve fiscal years, and do not plan to access this line of credit in future periods.

The following table reflects, as of September 30, 2021, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

	One Year		One to		Three to		Over
	or Less		Three Years		Five Years		Five Years		Total
Deposits without a stated maturity	$	3,430,424,000	$	0	$	0	$	0	$	3,430,424,000
Time deposits		272,640,000		120,862,000		45,065,000		0		438,567,000
Short-term borrowings		175,850,000		0		0		0		175,850,000
Federal Home Loan Bank advances		84,000,000		160,000,000		100,000,000		50,000,000		394,000,000
Subordinated debentures		0		0		0		48,074,000		48,074,000
Other borrowed money		0		0		0		1,517,000		1,517,000
Property leases		779,000		1,456,000		367,000		1,157,000		3,759,000

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 September 30, 2021, we had a total of $1.54 billion in unfunded loan commitments and $29.4 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $1.29 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $253 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels, and include such data in our overall liquidity management.

68

MERCANTILE BANK CORPORATION

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. While we believe it is unlikely that a funding crisis of any significant degree is likely to materialize, we have developed a comprehensive contingency funding plan that provides a framework for meeting liquidity disruptions.

Capital Resources

Shareholders’ equity was $452 million at September 30, 2021, compared to $442 million at December 31, 2020. The $10.7 million increase during the first nine months of 2021 primarily reflects the positive impact of net income totaling $47.4 million, partially offset by the negative impact of cash dividends and common stock repurchases totaling $13.9 million and $19.8 million, respectively. Reflecting an increase in market interest rates, the change in net unrealized holding gain/loss on securities available for sale, net of tax effect, had a $5.8 million negative impact on shareholders’ equity during the first nine months of 2021.

In May 2021, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This program replaces a similar $20.0 million program that had been announced in May 2019 that was nearing exhaustion. During the first nine months of 2021, we repurchased a total of approximately 636,000 shares at a total price of $19.8 million, at an average price per share of $31.14. Availability under the repurchase plan totaled $8.4 million as of September 30, 2021. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank.

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. 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. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. 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 September 30, 2021, our bank met all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

As of September 30, 2021, our bank’s total risk-based capital ratio was 12.4%, compared to 13.5% at December 31, 2020. Our bank’s total regulatory capital increased $25.4 million during the first nine months of 2021, in large part reflecting the net impact of net income totaling $51.1 million and cash dividends paid to us aggregating $26.0 million. Our bank’s total risk-based capital ratio was also impacted by a $495 million increase in total risk-weighted assets, primarily resulting from growth in core commercial loans and securities available for sale. As of September 30, 2021, our bank’s total regulatory capital equaled $483 million, or approximately $94 million in excess of the 10.0% minimum which is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of September 30, 2021 and December 31, 2020 are disclosed in Note 12 of the Notes to Consolidated Financial Statements.

Results of Operations

We recorded net income of $15.1 million, or $0.95 per basic and diluted share, for the third quarter of 2021, compared to net income of $10.7 million, or $0.66 per basic and diluted share, for the third quarter of 2020. We recorded net income of $47.4 million, or $2.95 per basic and diluted share, for the first nine months of 2021, compared to net income of $30.1 million, or $1.85 per basic and diluted share, for the first nine months of 2020.

69

MERCANTILE BANK CORPORATION

The improved levels of net income during the 2021 periods compared to the respective 2020 periods primarily resulted from increased noninterest income and net interest income and lower provision expense. Growth in noninterest income during the 2021 periods primarily resulted from fee income generated from an interest rate swap program that was introduced during the fourth quarter of 2020. A higher level of mortgage banking income also significantly contributed to the growth in noninterest income during the first nine months of 2021. The increases in net interest income during the 2021 periods resulted from the positive impact of earning asset growth, which more than offset the negative impact of lower net interest margins. A negative loan loss provision was recorded during the first nine months of 2021, primarily reflecting a reduced allocation associated with the economic and business conditions environmental factor. Noninterest expense decreased in the third quarter of 2021 compared to the prior-year third quarter, mainly reflecting a lower bonus accrual, and increased during the first nine months of 2021 compared to respective 2020 period, primarily reflecting higher compensation costs.

Interest income during the third quarter of 2021 was $35.9 million, an increase of $0.3 million, or 0.8%, from the $35.6 million earned during the third quarter of 2020. The increase resulted from growth in average earning assets, which more than offset the impact of a lower yield on average earning assets. Average earning assets equaled $4.56 billion during the current-year third quarter, up $481 million, or 11.8%, from the level of $4.08 billion during the respective 2020 period; average interest-earning deposits were up $276 million, average securities increased $220 million, and average loans were down $15.2 million. The yield on average earning assets was 3.13% during the third quarter of 2021, compared to 3.45% during the third quarter of 2020. The decline primarily resulted from a change in earning asset mix. On average, lower-yielding interest-earning deposits and securities represented 16.1% and 12.0% of earning assets, respectively, during the third quarter of 2021, up from 11.2% and 8.0%, respectively, during the third quarter of 2020, while higher-yielding loans represented 71.9% of earning assets during the current-year third quarter, down from 80.8% during the prior-year third quarter. A significant volume of excess on-balance sheet liquidity, which initially surfaced in the second quarter of 2020 as a result of the Covid-19 environment and persisted during the remainder of 2020 and the first nine months of 2021, negatively impacted the yield on average earning assets by 51 basis points during the third quarter of 2021. The excess funds, consisting primarily of low-yielding deposits with the Federal Reserve Bank of Chicago, are mainly a product of federal government stimulus programs, lower business and consumer spending and investing, and PPP loan forgiveness activities.

A decreased yield on securities also contributed to the lower yield on average earning assets in the current-year third quarter compared to the respective 2020 period. The yield on securities was 1.46% during the third quarter of 2021, down from 2.26% during the prior-year third quarter mainly due to lower yields on newly purchased bonds, reflecting the declining interest rate environment, and decreased accelerated discount accretion on called U.S. Government agency bonds. Accelerated discount accretion totaled $0.3 million during the third quarter of 2020; a nominal level of accelerated discount accretion was recorded during the third quarter of 2021. As part of our interest rate risk management program, U.S. Government agency bonds are periodically purchased at discounts during rising interest rate environments; if these bonds are called during decreasing interest rate environments, the remaining unaccreted discount amounts are immediately recognized as interest income.

70

MERCANTILE BANK CORPORATION

Interest income during the first nine months of 2021 was $106 million, a decrease of $4.2 million, or 3.8%, from the $111 million earned during the first nine months of 2020. The decrease resulted from a lower yield on average earning assets, which more than offset the impact of growth in average earning assets. The yield on average earning assets was 3.21% during the first nine months of 2021, compared to 3.91% during the respective 2020 period. The decline primarily resulted from a change in earning asset mix and lower yields on securities and loans. On average, lower-yielding interest-earning deposits and securities represented 14.6% and 10.9% of earning assets, respectively, during the first nine months of 2021, up from 7.7% and 8.9%, respectively, during the first nine months of 2020, while higher-yielding loans represented 74.5% and 83.4% of earning assets during the respective periods. The previously mentioned significant volume of excess on-balance sheet liquidity negatively impacted the yield on average earning assets by 46 basis points during the first nine months of 2021. The yield on securities was 1.53% during the first nine months of 2021, down from 3.47% during the respective 2020 period mainly due to decreased accelerated discount accretion on called U.S. Government agency bonds and lower yields on newly purchased bonds, reflecting the declining interest rate environment. Accelerated discount accretion totaled $3.0 million during the first nine months of 2020; accelerated discount accretion of less than $0.1 million was recorded during the first nine months of 2021. The yield on loans declined from 4.28% during the first nine months of 2020 to 4.06% during the first nine months of 2021 mainly due to a lower yield on commercial loans, which equaled 4.32% and 4.08% during the respective periods. The decreased yield on commercial loans primarily reflected reduced interest rates on variable-rate commercial loans resulting from the FOMC significantly decreasing the targeted federal funds rate by a total of 150 basis points in March of 2020, along with the origination of new loans and renewal of maturing loans in the lower interest rate environment and a decreased level of PPP net loan fee accretion, which totaled $8.5 million during the first nine months of 2021, down from $11.1 million during the respective 2020 period. Average earning assets equaled $4.44 billion during the first nine months of 2021, up $684 million, or 18.2%, from the level of $3.76 billion during the first nine months of 2020; average interest-earning deposits were up $360 million, average loans increased $175 million, and average securities were up $149 million.

Interest expense during the third quarter of 2021 was $4.8 million, a decrease of $1.3 million, or 21.7%, from the $6.1 million expensed during the third quarter of 2020. The decrease is attributable to a lower weighted average cost of interest-bearing liabilities, which equaled 0.69% in the current-year third quarter compared to 0.99% in the prior-year third quarter. The decline mainly reflected lower rates paid on local time deposits and a change in funding mix, consisting of an increase in average lower-cost interest-bearing non-time deposits and a decrease in average higher-cost time deposits as a percentage of average total interest-bearing liabilities. The cost of time deposits declined from 1.86% during the third quarter of 2020 to 1.16% during the current-year third quarter due to lower interest rates paid on local time deposits, reflecting the decreasing interest rate environment, and a change in composition, primarily reflecting a decrease in higher-cost brokered funds. On average, lower-cost non-time deposits represented 61.0% of total interest-bearing liabilities during the third quarter of 2021, up from 52.3% during the third quarter of 2020, while higher-cost time deposits represented 16.6% and 23.8% of total interest-bearing liabilities during the respective periods. Average interest-bearing liabilities were $2.74 billion during the third quarter of 2021, up $293 million, or 12.0%, from the $2.45 billion average during the third quarter of 2020.

71

MERCANTILE BANK CORPORATION

Interest expense during the first nine months of 2021 was $14.9 million, a decrease of $5.4 million, or 26.5%, from the $20.3 million expensed during the first nine months of 2020. The decrease is attributable to a lower weighted average cost of interest-bearing liabilities, which equaled 0.75% in the first nine months of 2021 compared to 1.15% in the respective 2020 period. The decline reflected lower costs of time deposits, non-time deposit accounts, and borrowed funds and a change in funding mix, consisting of an increase in average lower-cost interest-bearing non-time deposits and a decrease in average higher-cost time deposits as a percentage of average total interest-bearing liabilities. The cost of time deposits declined from 2.04% during the first nine months of 2020 to 1.30% during the respective 2021 period due to lower rates paid on local time deposits, reflecting the decreased interest rate environment, and a change in composition, primarily reflecting a decline in higher-cost brokered funds. The cost of interest-bearing non-time deposit accounts decreased from 0.30% during the first nine months of 2020 to 0.21% during the first nine months of 2021, primarily reflecting lower interest rates paid on money market accounts; the reduced interest rates mainly reflect the decreasing interest rate environment. The cost of borrowed funds decreased from 1.98% during the first nine months of 2020 to 1.72% during the respective 2021 period, primarily reflecting lower costs of FHLBI advances and subordinated debentures. The cost of FHLBI advances was 2.06% during the first nine months of 2021, down from 2.22% during the first nine months of 2020, primarily reflecting the impact of a blend and extend transaction that was executed in June 2020 with the FHLBI to extend the duration of our advance portfolio as part of our interest rate risk management program and the declining interest rate environment. The cost of subordinated debentures was 3.78% during the first nine months of 2021, down from 5.02% during the respective 2020 period due to decreases in the 90-Day Libor Rate. A change in composition, mainly reflecting an increase in lower-cost sweep accounts, also contributed to the decreased cost of borrowed funds. On average, lower-cost non-time deposits represented 59.5% of total interest-bearing liabilities during the first nine months of 2021, up from 50.5% during the first nine months of 2020, while higher-cost time deposits represented 18.2% and 25.3% of total interest-bearing liabilities during the respective periods. Average interest-bearing liabilities were $2.67 billion during the first nine months of 2021, up $316 million, or 13.4%, from the $2.36 billion average during the first nine months of 2020.

Net interest income during the third quarter of 2021 was $31.1 million, an increase of $1.6 million, or 5.5%, from the $29.5 million earned during the respective 2020 period. The increase resulted from the positive impact of an increase in average earning assets, which more than offset a lower net interest margin. The net interest margin decreased from 2.86% in the third quarter of 2020 to 2.71% in the current-year third quarter due to a lower yield on average earning assets, which more than offset a reduction in the cost of funds. The decreased yield on average earning assets reflected a change in earning asset mix, along with a lower yield on securities, while the decreased cost of funds mainly reflected lower rates paid on local time deposits and a change in funding mix. The previously discussed significant level of excess on-balance sheet liquidity negatively impacted the net interest margin by 44 basis points during the third quarter of 2021.

Net interest income during the first nine months of 2021 was $91.5 million, an increase of $1.1 million, or 1.3%, from the $90.4 million earned during the first nine months of 2020. The increase resulted from the positive impact of an increase in average earning assets, which more than offset a lower net interest margin. The net interest margin decreased from 3.19% in the first nine months of 2020 to 2.76% in the respective 2021 period due to a lower yield on average earning assets, which more than offset a reduction in the cost of funds. The decreased yield on average earning assets primarily reflected a change in earning asset mix and lower yields on securities and commercial loans, while the decreased cost of funds mainly reflected lower costs of deposits and borrowed funds and a change in funding mix. The aforementioned significant level of excess on-balance sheet liquidity negatively impacted the net interest margin by 40 basis points during the first nine months of 2021.

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 third quarters and first nine months of 2021 and 2020. 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 third quarters and first nine months of 2021 and 2020 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 third quarter of both 2021 and 2020 and $180,000 in the first nine months of both 2021 and 2020 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 each of the 2021 and 2020 periods.

72

MERCANTILE BANK CORPORATION

	Quarters ended September 30,
	2 0 2 1								2 0 2 0
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	3,276,863		$	33,656		4.07	%	$	3,292,025		$	33,664		4.03	%
Investment securities		547,336			2,001		1.46			327,668			1,848		2.26
Other interest-earning assets		733,801			291		0.16			457,598			142		0.12
Total interest - earning assets		4,558,000			35,948		3.13			4,077,291			35,654		3.45
Allowance for loan losses		(36,369	)							(33,580	)
Other assets		334,980								302,913
Total assets	$	4,856,611							$	4,346,624
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	2,125,920		$	2,184		0.41	%	$	1,863,302		$	3,466		0.74	%
Short-term borrowings		170,528			46		0.11			140,180			38		0.11
Federal Home Loan Bank advances		394,000			2,072		2.06			394,000			2,072		2.06
Other borrowings		49,533			462		3.65			49,814			509		4.00
Total interest-bearing liabilities		2,739,981			4,764		0.69			2,447,296			6,085		0.99
Noninterest-bearing deposits		1,641,158								1,454,887
Other liabilities		19,569								14,576
Shareholders’ equity		455,903								429,865
Total liabilities and shareholders’ equity	$	4,856,611							$	4,346,624
Net interest income				$	31,184							$	29,569
Net interest rate spread							2.44	%							2.46	%
Net interest spread on average assets							2.55	%							2.70	%
Net interest margin on earning assets							2.71	%							2.86	%

73

MERCANTILE BANK CORPORATION

	Nine months ended September 30,
	2 0 2 1								2 0 2 0
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	3,308,119		$	100,430		4.06	%	$	3,132,884		$	101,428		4.28	%
Investment securities		484,020			5,555		1.53			335,443			8,734		3.47
Other interest-earning assets		648,780			642		0.13			288,310			711		0.32
Total interest - earning assets		4,440,919			106,627		3.21			3,756,637			110,873		3.91
Allowance for loan losses		(37,977	)							(27,963	)
Other assets		327,540								295,501
Total assets	$	4,730,482							$	4,024,175
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	2,076,221		$	7,247		0.47	%	$	1,785,391		$	11,808		0.88	%
Short-term borrowings		151,522			122		0.11			135,474			132		0.13
Federal Home Loan Bank advances		394,000			6,149		2.06			384,511			6,499		2.22
Other borrowings		49,584			1,401		3.73			49,744			1,857		4.90
Total interest-bearing liabilities		2,671,327			14,919		0.75			2,355,120			20,296		1.15
Noninterest-bearing deposits		1,590,969								1,228,729
Other liabilities		19,671								16,402
Shareholders’ equity		448,515								423,924
Total liabilities and shareholders’ equity	$	4,730,482							$	4,024,175
Net interest income				$	91,708							$	90,577
Net interest rate spread							2.46	%							2.76	%
Net interest spread on average assets							2.59	%							3.00	%
Net interest margin on earning assets							2.76	%							3.19	%

A loan loss provision expense of $1.9 million and $3.2 million was recorded during the third quarters of 2021 and 2020, respectively. A negative loan loss provision expense of $0.9 million was recorded during the first nine months of 2021, compared to a provision expense of $11.6 million during the first nine months of 2020. The provision expense recorded during the current-year third quarter mainly reflected net core commercial loan growth, while the provision expense recorded during the prior-year third quarter was primarily comprised of increased allocations associated with the downgrading of certain non-impaired commercial loan relationships to reflect stressed economic conditions stemming from the Covid-19 environment. The negative provision expense recorded during the first nine months of 2021 was mainly comprised of a reduced allocation associated with the economic and business conditions environmental factor, reflecting improvement in both current and forecasted economic conditions, which more than offset required reserve allocations necessitated by net growth in core commercial loans.

74

MERCANTILE BANK CORPORATION

The provision expense recorded during the first nine months of 2020 mainly consisted of increased allocations related to changes in the existing economic and business conditions environmental factor during the first and second quarters and an allocation associated with the Covid-19 factor during the second quarter, along with the increased allocations resulting from the aforementioned commercial loan downgrades. The Covid-19 factor was added to address the unique challenges and economic uncertainty resulting from the pandemic and its potential impact on the collectability of the loan portfolio.

During the third quarter of 2021, loan charge-offs totaled $0.8 million, while recoveries of prior period loan charge-offs equaled $0.4 million, providing for net loan charge-offs of $0.4 million, or an annualized 0.05% of average total loans. During the third quarter of 2020, loan charge-offs totaled $0.1 million, while recoveries of prior period loan charge-offs equaled $0.2 million, providing for net loan recoveries of $0.1 million, or an annualized 0.02% of average total loans. During the first nine months of 2021, loan charge-offs totaled $0.9 million, while recoveries of prior period loan charge-offs equaled $1.2 million, providing for net loan recoveries of $0.3 million, or an annualized 0.01% of average total loans. During the first nine months of 2020, loan charge-offs totaled $0.5 million, while recoveries of prior period loan charge-offs equaled $0.6 million, providing for net loan recoveries of $0.1 million, or an annualized 0.01% of average total loans. The allowance for loans, as a percentage of total loans, was 1.1% as of September 30, 2021, and September 30, 2020, and 1.2% as of December 31, 2020. Excluding PPP loans, the allowance for loans, as a percentage of total loans, equaled 1.2% as of September 30, 2021, and 1.3% as of December 31, 2020, and September 30, 2020.

Noninterest income during the third quarter of 2021 was $15.6 million, compared to $13.3 million during the prior-year third quarter. Noninterest income during the third quarter of 2021 included a recovery of loan collection costs totaling $0.6 million. Excluding the impact of this transaction, noninterest income increased $1.7 million, or 12.6%, during the third quarter of 2021 compared to the respective 2020 period. Noninterest income during the first nine months of 2021 was $43.6 million, compared to $30.8 million during the first nine months of 2020. Noninterest income during the first nine months of 2021 included a $1.1 million gain on the sale of a branch facility and the aforementioned recovery of loan collection costs. Excluding the impacts of these transactions, noninterest income increased $11.1 million, or 36.0%, during the first nine months of 2021 compared to the respective prior-year period. The higher levels of noninterest income in the 2021 periods mainly reflected fee income generated from an interest rate swap program, which was introduced during the fourth quarter of 2020 and provides certain commercial borrowers with a longer-term fixed-rate option and assists us in managing associated longer-term interest rate risk. Increased mortgage banking income, primarily reflecting increased production and a higher gain on sale rate, also significantly contributed to the higher level of noninterest income during the first nine months of 2021. Residential mortgage loan originations totaled $742 million during the first nine months of 2021, approximately 15% higher than originations during the first nine months of 2020. Purchase transactions totaled $370 million during the first nine months of 2021, compared to $198 million during the respective 2020 period, representing an increase of $172 million, or approximately 87%. Refinance transactions totaled $372 million during the first nine months of 2021, compared to $448 million during the first nine months of 2020, representing a decrease of $75.5 million, or approximately 17%. Residential mortgage loans originated for sale, generally consisting of longer-term fixed rate residential mortgage loans, totaled $514 million, or approximately 69% of total mortgage loans originated, during the first nine months of 2021. During the first nine months of 2020, residential mortgage loans originated for sale totaled $512 million, or approximately 79% of total mortgage loans originated. Mortgage banking income remained sound in the third quarter of 2021 as sustained strength in purchase mortgage originations largely mitigated the negative impacts of an expected decrease in refinance activity, a lower mortgage loan sold percentage, and a decreased gain on sale rate. Purchase transactions totaled $144 million during the third quarter of 2021, compared to $93.1 million during the prior-year third quarter. Refinance transactions totaled $116 million during the current-year third quarter, compared to $144 million during the third quarter of 2020. Growth in credit and debit card income, service charges on accounts, and payroll service fees also contributed to the increased level of noninterest income during the 2021 periods.

75

MERCANTILE BANK CORPORATION

Noninterest expense totaled $26.2 million during the third quarter of 2021, down $0.2 million from the third quarter of 2020. The lower level of expense primarily resulted from decreased compensation costs, mainly reflecting a reduced bonus accrual and lower stock-based compensation expense, which more than offset increased regular salary expense primarily stemming from annual employee merit pay increases. The bonus accrual during the third quarter of 2020 was increased due to a change in estimate as no accruals were recorded during the first and second quarters of the year due to Covid-19 and associated weakened economic environment. Noninterest expense during the first nine months of 2021 was $77.5 million, an increase of $4.9 million, or 6.8%, from the $72.6 million expensed during the first nine months of 2020. The higher level of expense mainly resulted from increased compensation costs, primarily reflecting employee merit pay increases, increased residential mortgage loan originator commissions and associated incentives, a larger bonus accrual, and increased health insurance costs. Mainly reflecting a higher level of claims, some of which resulted from the treatment of Covid-19 related medical conditions, health insurance costs were up $0.2 million in the third quarter of 2021 and $1.2 million during the first nine months of 2021 compared to the respective 2020 periods. FDIC deposit insurance premiums were up $0.2 million in the current-year third quarter and $0.5 million in the first nine months of 2021 compared to the respective 2020 periods, reflecting an increased assessment base and rate. Noninterest expense during the first nine months of 2021 included $0.6 million in net losses on sales and write-downs of former branch facilities.

During the third quarter of 2021, we recorded income before federal income tax of $18.6 million and a federal income tax expense of $3.5 million. During the third quarter of 2020, we recorded income before federal income tax of $13.2 million and a federal income tax expense of $2.5 million. During the first nine months of 2021, we recorded income before federal income tax of $58.5 million and a federal income tax expense of $11.1 million. During the first nine months of 2020, we recorded income before federal income tax of $37.1 million and a federal income tax expense of $7.0 million. The increased federal income tax expense in both 2021 periods resulted from higher levels of income before federal income tax. Our effective tax rate was 19.0% during both the third quarter and first nine months of 2021 and the respective 2020 periods.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

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

76

MERCANTILE BANK CORPORATION

The following table depicts our GAP position as of September 30, 2021:

	Within			Three to			One to			After
	Three			Twelve			Five			Five
	Months			Months			Years			Years			Total
Assets:
Commercial loans (1)	$	674,808,000		$	340,870,000		$	1,347,922,000		$	499,123,000		$	2,862,723,000
Residential real estate loans		23,140,000			21,854,000			118,847,000			271,915,000			435,756,000
Consumer loans		1,140,000			594,000			12,834,000			662,000			15,230,000
Securities (2)		19,064,000			8,783,000			182,884,000			366,835,000			577,566,000
Other interest-earning assets		739,307,000			1,000,000			1,250,000			0			741,557,000
Allowance for loan losses		0			0			0			0			(37,423,000	)
Other assets		0			0			0			0			369,003,000
Total assets		1,457,459,000			373,101,000			1,663,737,000			1,138,535,000		$	4,964,412,000
Liabilities:
Interest-bearing checking		535,983,000			0			0			0			535,983,000
Savings deposits		392,298,000			0			0			0			392,298,000
Money market accounts		854,763,000			0			0			0			854,763,000
Time deposits under $100,000		23,569,000			58,900,000			56,562,000			0			139,031,000
Time deposits $100,000 & over		57,329,000			132,842,000			109,365,000			0			299,536,000
Short-term borrowings		175,850,000			0			0			0			175,850,000
Federal Home Loan Bank advances		20,000,000			64,000,000			260,000,000			50,000,000			394,000,000
Other borrowed money		49,591,000			0			0			0			49,591,000
Noninterest-bearing checking		0			0			0			0			1,647,380,000
Other liabilities		0			0			0			0			23,702,000
Total liabilities		2,109,383,000			255,742,000			425,927,000			50,000,000			4,512,134,000
Shareholders' equity		0			0			0			0			452,278,000
Total liabilities & shareholders' equity		2,109,383,000			255,742,000			425,927,000			50,000,000		$	4,964,412,000
Net asset (liability) GAP	$	(651,924,000	)	$	117,359,000		$	1,237,810,000		$	1,088,535,000
Cumulative GAP	$	(651,924,000	)	$	(534,565,000	)	$	703,245,000		$	1,791,780,000
Percent of cumulative GAP to total assets		(13.1	%)		(10.8	%)		14.2	%		36.1	%

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

⁽²⁾ Mortgage-backed securities are categorized by average life calculations based upon prepayment trends as of September 30, 2021.

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

77

MERCANTILE BANK CORPORATION

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

We conducted multiple simulations as of September 30, 2021, in which it was assumed that changes in market interest rates occurred ranging from up 300 basis points to down 100 basis points in equal quarterly instalments over the next twelve months. The following table reflects the suggested dollar and percentage changes in net interest income over the next twelve months in comparison to the $123 million in net interest income projected using our balance sheet amounts and anticipated replacement rates as of September 30, 2021. The resulting estimates are generally within our policy parameters established to manage and monitor interest rate risk.

	Dollar Change		Percent Change
	In Net		In Net
Interest Rate Scenario	Interest Income		Interest Income
Interest rates down 100 basis points	$	1,600,000		1.3	%
Interest rates up 100 basis points		6,700,000		5.5
Interest rates up 200 basis points		13,300,000		10.7
Interest rates up 300 basis points		19,700,000		16.0

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

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

Item 4. Controls and Procedures

As of September 30, 2021, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2021.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

78

MERCANTILE BANK CORPORATION

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in various legal proceedings that are incidental to our business. In our opinion, we are not a party to any current legal proceedings that are material to our financial condition, either individually or in the aggregate.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020, our March 31, 2021 Form 10-Q, and our June 30, 2021 Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

We made no unregistered sales of equity securities during the quarter ended September 30, 2021.

Issuer Purchases of Equity Securities

On May 27, 2021, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This program replaces a similar $20.0 million program that had been announced on May 7, 2019 that was nearing exhaustion. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our stock, general market and economic conditions, our capital position, financial performance and alternative uses of capital, and applicable legal requirements. The program may be discontinued at any time.

During the third quarter of 2021, we repurchased a total of 288,863 shares for $8.9 million, at a weighted average all-in cost per share of $30.97. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank.

Repurchases made during the third quarter of 2021 are detailed in the table below.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares or Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs
July 1 – 31		114,412	$	30.62		114,412	$	13,843,000
August 1 – 31		81,884		31.96		81,884		11,226,000
September 1 – 30		92,567		30.54		92,567		8,399,000
Total		288,863	$	30.97		288,863	$	8,399,000

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

79

MERCANTILE BANK CORPORATION

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

EXHIBIT NO.	EXHIBIT DESCRIPTION
3.1	Our Articles of Incorporation are incorporated by reference to Exhibit 3.1 of our Form 10-Q for the quarter ended June 30, 2009
3.2	Our Amended and Restated Bylaws dated as of February 26, 2015 are incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed February 26, 2015
31	Rule 13a-14(a) Certifications
32.1	Section 1350 Chief Executive Officer Certification
32.2	Section 1350 Chief Financial Officer Certification
101	The following financial information from Mercantile’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

80

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 5, 2021.

MERCANTILE BANK CORPORATION

By: /s/ Robert B. Kaminski, Jr.

Robert B. Kaminski, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

By: /s/ Charles E. Christmas

Charles E. Christmas

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

81

EX-31

EXHIBIT 31

RULE 13a-14(a) CERTIFICATIONS

I, Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile Bank Corporation, certify that:

1.         I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.         The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)         Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.         The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:         November 5, 2021	/s/ Robert B. Kaminski, Jr.
	Robert B. Kaminski, Jr.
	President and Chief Executive Officer

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of Mercantile Bank Corporation, certify that:

1.         I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.         The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)         Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.         The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:         November 5, 2021	/s/ Charles E. Christmas
	Charles E. Christmas.
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended September 30, 2021 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

  I, Robert B. Kaminski, Jr., President and Chief Executive Officer of the Issuer, certify that to my knowledge:

(i)         the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)        the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: November 5, 2021

/s/ Robert B. Kaminski, Jr.                           

Robert B. Kaminski, Jr.

President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended September 30, 2021 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of the Issuer, certify that to my knowledge:

(i)         the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)         the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: November 5, 2021

/s/ Charles E. Christmas                  

Charles E. Christmas

Executive Vice President, Chief Financial Officer and Treasurer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Oct. 29, 2021
Document Information [Line Items]
Entity Central Index Key	0001042729
Entity Registrant Name	MERCANTILE BANK CORPORATION
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2021
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	000-26719
Entity Incorporation, State or Country Code	MI
Entity Tax Identification Number	38-3360865
Entity Address, Address Line One	310 Leonard Street, NW
Entity Address, City or Town	Grand Rapids
Entity Address, State or Province	MI
Entity Address, Postal Zip Code	49504
City Area Code	616
Local Phone Number	406-3000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Title of 12(b) Security	Common Stock
Trading Symbol	MBWM
Security Exchange Name	NASDAQ
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		15,670,645

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
ASSETS
Cash and due from banks	$ 83,804,000	$ 62,832,000
Interest-earning deposits	741,557,000	563,174,000
Total cash and cash equivalents	825,361,000	626,006,000
Securities available for sale	559,564,000	387,347,000
Federal Home Loan Bank stock	18,002,000	18,002,000
Loans	3,313,709,000	3,193,470,000
Allowance for loan losses	(37,423,000)	(37,967,000)
Loans, net	3,276,286,000	3,155,503,000
Premises and equipment, net	57,465,000	58,959,000
Bank owned life insurance	72,963,000	72,131,000
Goodwill	49,473,000	49,473,000
Core deposit intangible, net	1,589,000	2,436,000
Mortgage loans held for sale	47,247,000	22,888,000
Other assets	56,462,000	44,599,000
Total assets	4,964,412,000	4,437,344,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing	1,647,380,000	1,433,403,000
Interest-bearing	2,221,611,000	1,978,150,000
Total deposits	3,868,991,000	3,411,553,000
Securities sold under agreements to repurchase	175,850,000	118,365,000
Federal Home Loan Bank advances	394,000,000	394,000,000
Subordinated debentures	48,074,000	47,563,000
Accrued interest and other liabilities	25,219,000	24,309,000
Total liabilities	4,512,134,000	3,995,790,000
Commitments and contingent liabilities (Note 8)
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued	0	0
Common stock, no par value; 40,000,000 shares authorized; 15,717,663 shares issued and outstanding at September 30, 2021 and 16,425,136 shares issued and outstanding at December 31, 2020	285,033,000	302,029,000
Retained earnings	167,541,000	134,039,000
Accumulated other comprehensive gain/(loss)	(296,000)	5,486,000
Total shareholders’ equity	452,278,000	441,554,000
Total liabilities and shareholders’ equity	$ 4,964,412,000	$ 4,437,344,000

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Sep. 30, 2021	Dec. 31, 2020
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares outstanding (in shares)	15,717,663	16,425,136
Common stock, shares issued (in shares)	15,717,663	16,425,136

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Interest income
Loans, including fees	$ 33,656,000	$ 33,664,000	$ 100,430,000	$ 101,428,000
Securities, taxable	1,341,000	1,212,000	3,580,000	6,840,000
Securities, tax-exempt	600,000	576,000	1,795,000	1,714,000
Other interest-earning assets	291,000	142,000	642,000	711,000
Total interest income	35,888,000	35,594,000	106,447,000	110,693,000
Interest expense
Deposits	2,184,000	3,466,000	7,247,000	11,808,000
Short-term borrowings	46,000	38,000	122,000	132,000
Federal Home Loan Bank advances	2,072,000	2,072,000	6,149,000	6,499,000
Subordinated debentures and other borrowings	462,000	509,000	1,401,000	1,857,000
Total interest expense	4,764,000	6,085,000	14,919,000	20,296,000
Net interest income	31,124,000	29,509,000	91,528,000	90,397,000
Provision for loan losses	1,900,000	3,200,000	(900,000)	11,550,000
Net interest income after provision for loan losses	29,224,000	26,309,000	92,428,000	78,847,000
Noninterest income:
Mortgage banking income	6,554,000	9,479,000	23,049,000	19,746,000
Interest rate swap fees	3,938,000	0	6,086,000	0
Payroll services income	412,000	399,000	1,374,000	1,346,000
Earnings on bank owned life insurance	298,000	290,000	872,000	933,000
Gain on sale of branch	0	0	1,058,000	0
Other income	1,095,000	368,000	1,916,000	1,042,000
Total noninterest income	15,568,000	13,307,000	43,587,000	30,839,000
Noninterest expense
Salaries and benefits	15,975,000	16,734,000	47,255,000	44,388,000
Occupancy	2,030,000	2,023,000	6,021,000	5,944,000
Furniture and equipment depreciation, rent and maintenance	929,000	871,000	2,719,000	2,500,000
Data processing costs	2,746,000	2,676,000	8,138,000	7,793,000
Other expense	4,530,000	4,119,000	13,386,000	11,954,000
Total noninterest expense	26,210,000	26,423,000	77,519,000	72,579,000
Income before federal income tax expense	18,582,000	13,193,000	58,496,000	37,107,000
Federal income tax expense	3,531,000	2,507,000	11,114,000	7,051,000
Net income	$ 15,051,000	$ 10,686,000	$ 47,382,000	$ 30,056,000
Basic earnings per share (in dollars per share)	$ 0.95	$ 0.66	$ 2.95	$ 1.85
Diluted earnings per share (in dollars per share)	0.95	0.66	2.95	1.85
Cash dividends per share (in dollars per share)	$ 0.30	$ 0.28	$ 0.88	$ 0.84
Average basic shares outstanding (in shares)	15,859,955	16,233,196	16,084,806	16,265,208
Average diluted shares outstanding (in shares)	15,860,314	16,233,666	16,085,274	16,265,986
Service Charges on Deposit and Sweep Accounts [Member]
Noninterest income:
Noninterest revenue	$ 1,324,000	$ 1,135,000	$ 3,687,000	$ 3,401,000
Credit and Debit Card [Member]
Noninterest income:
Noninterest revenue	$ 1,947,000	$ 1,636,000	$ 5,545,000	$ 4,371,000

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Net income	$ 15,051,000	$ 10,686,000	$ 47,382,000	$ 30,056,000
Other comprehensive income/(loss):
Unrealized holding gains/(losses) on securities available for sale	(2,281,000)	(675,000)	(7,318,000)	2,352,000
Tax effect of unrealized holding gains/(losses) on securities available for sale	479,000	143,000	1,536,000	(494,000)
Other comprehensive income/(loss), net of tax	(1,802,000)	(532,000)	(5,782,000)	1,858,000
Comprehensive income	$ 13,249,000	$ 10,154,000	$ 41,600,000	$ 31,914,000

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock Including Additional Paid in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances at Dec. 31, 2019	$ 0	$ 305,035,000	$ 107,831,000	$ 3,695,000	$ 416,561,000
Employee stock purchase plan		37,000			37,000
Dividend reinvestment plan		610,000			610,000
Stock-based compensation expense		2,102,000			2,102,000
Share repurchase program		(6,282,000)			(6,282,000)
Cash dividends			(13,436,000)		(13,436,000)
Net income			30,056,000		30,056,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				1,858,000	1,858,000
Stock grants to directors for retainer fees		394,000			394,000
Balances at Sep. 30, 2020	0	301,896,000	124,451,000	5,553,000	431,900,000
Balances at Jun. 30, 2020	0	300,897,000	118,239,000	6,085,000	425,221,000
Employee stock purchase plan		12,000			12,000
Dividend reinvestment plan		206,000			206,000
Stock-based compensation expense		736,000			736,000
Cash dividends			(4,474,000)		(4,474,000)
Net income			10,686,000		10,686,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(532,000)	(532,000)
Stock grants to directors for retainer fees		45,000			45,000
Balances at Sep. 30, 2020	0	301,896,000	124,451,000	5,553,000	431,900,000
Balances at Dec. 31, 2020	0	302,029,000	134,039,000	5,486,000	441,554,000
Employee stock purchase plan		35,000			35,000
Dividend reinvestment plan		648,000			648,000
Stock option exercises		50,000			50,000
Stock-based compensation expense		1,725,000			1,725,000
Share repurchase program		(19,798,000)			(19,798,000)
Cash dividends			(13,880,000)		(13,880,000)
Net income			47,382,000		47,382,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(5,782,000)	(5,782,000)
Stock grants to directors for retainer fees		344,000			344,000
Balances at Sep. 30, 2021	0	285,033,000	167,541,000	(296,000)	452,278,000
Balances at Jun. 30, 2021	0	293,232,000	157,150,000	1,506,000	451,888,000
Employee stock purchase plan		13,000			13,000
Dividend reinvestment plan		237,000			237,000
Stock option exercises		50,000			50,000
Stock-based compensation expense		448,000			448,000
Share repurchase program		(8,947,000)			(8,947,000)
Cash dividends			(4,660,000)		(4,660,000)
Net income			15,051,000		15,051,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				(1,802,000)	(1,802,000)
Balances at Sep. 30, 2021	$ 0	$ 285,033,000	$ 167,541,000	$ (296,000)	$ 452,278,000

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Common Stock Including Additional Paid in Capital [Member]
Employee stock purchase plan (in shares)	404	692	1,106	1,821
Dividend reinvestment plan (in shares)	7,904	10,327	20,814	27,707
Stock option exercises (in shares)	2,000		2,000
Share repurchase program (in shares)	288,863		635,773	222,385
Stock grants to directors (in shares)		2,068	10,489	17,716
Retained Earnings [Member]
Cash dividends per common share (in dollars per share)	$ 0.30	$ 0.28	$ 0.88	$ 0.84
Cash dividends per common share (in dollars per share)	$ 0.30	$ 0.28	$ 0.88	$ 0.84

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities
Net income	$ 47,382,000	$ 30,056,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization	10,200,000	6,262,000
Accretion of acquired loans	(102,000)	(337,000)
Provision for loan losses	(900,000)	11,550,000
Stock-based compensation expense	1,725,000	2,102,000
Stock grants to directors for retainer fee	344,000	394,000
Proceeds from sales of mortgage loans held for sale	509,763,000	505,602,000
Origination of mortgage loans held for sale	(510,571,000)	(506,683,000)
Net gain from sales of mortgage loans held for sale	(23,551,000)	(20,055,000)
Net gain from sales and valuation write-downs of foreclosed assets	(74,000)	(183,000)
Net (gain) loss from sales and valuation write-downs of former bank premises	243,000	(27,000)
Net loss from sales and write-downs of fixed assets	246,000	54,000
Earnings on bank owned life insurance	(872,000)	(933,000)
Gain on sale of branch	(1,058,000)	0
Net change in:
Accrued interest receivable	853,000	(1,080,000)
Other assets	(15,369,000)	(6,269,000)
Accrued interest payable and other liabilities	910,000	(4,147,000)
Net cash from operating activities	19,169,000	16,306,000
Cash flows from investing activities
Loan originations and payments, net	(129,522,000)	(472,417,000)
Purchases of securities available for sale	(257,967,000)	(270,119,000)
Proceeds from maturities, calls and repayments of securities available for sale	77,531,000	296,895,000
Proceeds from sales of foreclosed assets	181,000	313,000
Proceeds from sales of former bank premises	270,000	162,000
Net cash transferred in branch sale	(2,679,000)	0
Net purchases of premises and equipment and lease activity	(4,250,000)	(7,201,000)
Net cash for investing activities	(316,436,000)	(452,367,000)
Cash flows from financing activities
Net decrease in time deposits	(113,842,000)	(65,389,000)
Net increase in all other deposits	585,924,000	747,039,000
Net increase in securities sold under agreements to repurchase	57,485,000	54,342,000
Maturities of Federal Home Loan Bank advances	0	(20,000,000)
Proceeds from Federal Home Loan Bank advances	0	60,000,000
Proceeds from stock option exercises	50,000	0
Employee stock purchase plan	35,000	37,000
Dividend reinvestment plan	648,000	610,000
Repurchases of common stock shares	(19,798,000)	(6,282,000)
Payment of cash dividends to common shareholders	(13,880,000)	(13,436,000)
Net cash from financing activities	496,622,000	756,921,000
Net change in cash and cash equivalents	199,355,000	320,860,000
Cash and cash equivalents at beginning of period	626,006,000	233,731,000
Cash and cash equivalents at end of period	825,361,000	554,591,000
Supplemental disclosures of cash flows information
Interest	15,826,000	21,798,000
Federal income tax	14,450,000	7,950,000
Noncash financing and investing activities:
Transfers from loans to foreclosed assets	30,000	146,000
Transfers from bank premises to other real estate owned	$ 0	$ 179,000

XML

Note 1 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the nine months ended September 30, 2021 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s subsidiary Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. 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 September 30, 2021 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, 2020.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Coronavirus Pandemic: There remains a significant amount of stress and uncertainty across national and global economies due to the ongoing pandemic of coronavirus disease 2019 (“Covid-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “Coronavirus Pandemic”). This uncertainty is heightened as certain geographic areas continue to experience surges in Covid-19 cases and governments at all levels continue to react to changes in circumstances, including supply chain disruptions and inflationary pressures.

The Coronavirus Pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. We continue to occupy an asset-sensitive position, whereby interest rate environments characterized by numerous and/or high magnitude interest rate reductions have a negative impact on our net interest income and net income. Additionally, the consequences of the unprecedented economic impact of the Coronavirus Pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance and reduced net income.

The following section summarizes the primary measures that directly impact us and our customers.

● Paycheck Protection Program

The Paycheck Protection Program (“PPP”) reflects a substantial expansion of the Small Business Administration’s 100% guaranteed 7(a) loan program. The CARES Act authorized up to $350 billion in loans to businesses with fewer than 500 employees, including non-profit organizations, tribal business concerns, self-employed and individual contractors. The PPP provides 100% guaranteed loans to cover specific operating costs. PPP loans are eligible to be forgiven based upon certain criteria. In general, the amount of the loan that is forgivable is the sum of the payroll costs, interest payments on mortgages, rent and utilities incurred or paid by the business during a prescribed period beginning on the loan origination date. Any remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan. The interest rate on the loan is fixed at 1.00%, with the financial institution receiving a loan origination fee paid by the Small Business Administration. The loan origination fees, net of the direct origination costs, are accreted into interest income on loans using the level yield methodology. The program ended on August 8, 2020. We originated approximately 2,200 loans aggregating $553 million. As of September 30, 2021, we recorded forgiveness transactions on over 2,100 loans aggregating $550 million. Net loan origination fees of $3.7 million were recorded during the first nine months of 2021.

The Consolidated Appropriations Act, 2021 authorized an additional $284 billion in Second Draw PPP loans (“Second Draw”). The program ended on May 31, 2021. Under the Second Draw, we originated approximately 1,200 loans aggregating $209 million. As of September 30, 2021, we recorded forgiveness transactions on about 600 loans aggregating $95.9 million. Net loan origination fees of $4.8 million were recorded during the first nine months of 2021 under the Second Draw.

A PPP loan is assigned a risk weight of 0% under the risk-based capital rules of the federal banking agencies.

● Individual Economic Impact Payments

The Internal Revenue Service has made three rounds of Individual Economic Impact Payments via direct deposit or mailed checks. In general, and subject to adjusted gross income limitations, qualifying individuals have received payments of $1,200 in April 2020, $600 in January 2021 and $1,400 in March 2021.

● Troubled Debt Restructuring Relief

From March 1, 2020 through 60 days after the end of the National Emergency (or December 31, 2020 if earlier), a financial institution may elect to suspend GAAP principles and regulatory determinations with respect to loan modifications related to Covid-19 that would otherwise be categorized as troubled debt restructurings. Banking agencies must defer to the financial institution’s election. We elected to suspend GAAP principles and regulatory determinations as permitted. The Consolidated Appropriations Act, 2021 extended the suspension date to January 1, 2022.

● Current Expected Credit Loss Methodology Delay 

Financial institutions are not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the National Emergency or December 31, 2020. We elected to postpone CECL adoption as permitted. The Consolidated Appropriations Act, 2021 extended the adoption deferral date to January 1, 2022.

In early April 2020, in response to the early stages of the Coronavirus Pandemic and its pervasive impact across the economy and financial markets, we developed internal programs of loan payment deferments for commercial and retail borrowers. For commercial borrowers, we offered 90-day (three payments) interest only amendments as well as 90-day (three payments) principal and interest payment deferments. Under the latter program, borrowers were extended a 12-month single payment note at 0% interest in an amount equal to three payments, with loan proceeds used to make the scheduled payments. The single payment notes receive a loan grade equal to the loan grade of each respective borrowing relationship. Certain of our commercial loan borrowers subsequently requested and received an additional 90-day (three payments) interest only amendment or 90-day (three payments) principal and interest payment deferment. Under the latter program, the amount equal to the three payments was added to the original deferment note which has nine months remaining to maturity; however, the original 0% interest rate is modified to equal the rate associated with each borrower’s traditional lending relationship with us for the remainder of the term. At the peak of activity in mid-2020, nearly 750 borrowers with loan balances aggregating $719 million were participating in the commercial loan deferment program. As of September 30, 2021, we had no loans in the commercial loan deferment program.

For retail borrowers, we offered 90-day (three payments) principal and interest payment deferments, with deferred amounts added to the end of the loan. As of September 30, 2020, we had processed 260 principal and interest payment deferments with loan balances totaling $23.8 million. As of September 30, 2021, only six borrowers with loan balances aggregating $0.5 million remained in the retail loan payment deferment program.

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. 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 260,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2021. In addition, stock options for approximately 3,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2021. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2021.

Approximately 255,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2020. In addition, stock options for approximately 2,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2020. Stock options for approximately 9,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2020.

Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other-than-temporary impairment (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

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. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of September 30, 2021 and December 31, 2020, we determined the fair value of our mortgage loans held for sale to be $49.1 million and $24.0 million, respectively.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make an interest rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income. Mortgage loans serviced for others totaled approximately $1.26 billion and $1.04 billion as of September 30, 2021, and December 31, 2020, respectively.

    Mortgage Banking Activities: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. 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. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

The federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” on March 22, 2020, which was subsequently revised on April 7, 2020. This guidance encourages financial institutions to work prudently with borrowers that are or may be unable to meet their contractual obligations because of the effects of the Coronavirus Pandemic. Pursuant to the guidance, the federal banking agencies concluded, in consultation with FASB staff, that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current prior to any relief are not troubled debt restructurings. This guidance complements Section 4013 of the CARES Act, which specified that Coronavirus-related modifications made on loans that were current as of December 31, 2019 and that occur between March 1, 2020 and the earlier of 60 days after the date of termination of the National Emergency declared by President Trump on March 13, 2020 (the “National Emergency”) or December 31, 2020, as applicable, are not troubled debt restructurings. As part of the Consolidated Appropriations Act that was enacted in late 2020, this guidance was extended to January 1, 2022.

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. We estimate credit losses based on individual loans determined to be impaired and on all other loans grouped on similar risk characteristics. Our historical loss component is generally the most significant of the allowance components and is based on historical loss experience by credit risk grade for commercial loans and payment status for mortgage and consumer loans. Loans are pooled based on similar risk characteristics supported by observable data. The historical loss experience component of the allowance represents the results of migration analysis of historical net charge-offs for portfolios of loans, including groups of commercial loans within each credit risk grade. For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected future losses to be realized from the pool of loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative environmental factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, competition, increasing interest rates, external factors, Coronavirus Pandemic environment, and other considerations. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted. Loans made under PPP are fully guaranteed by the Small Business Administration; therefore, such loans do not have an associated allowance.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between the derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

Goodwill and Core Deposit Intangible: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We may elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a ten-year period using the sum-of-the-years-digits methodology.

Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis (generally monthly) or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Adoption of New Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019.

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted.

Hastings Branch Sale: As previously disclosed in a Current Report on Form 8-K filed on October 26, 2020, we entered into a Purchase and Assumption Agreement (“Agreement”) on October 21, 2020 regarding the sale of our Hastings, Michigan branch office to Lake Trust Credit Union (“Lake Trust”). All regulatory approvals were received and the sale was consummated on May 14, 2021. Under the terms of the Agreement, as amended on April 20, 2021, Lake Trust: 1) purchased $9.7 million in primarily residential mortgage loans at book balance; 2) purchased the branch facility at a price of $1.5 million; and 3) assumed all deposit accounts aggregating $14.6 million at a premium price of 5.0% of the book balance. In conjunction with the sale closing, we recorded a $0.7 million deposit premium and a $0.3 million gain on the sale of the branch facility.

Out-of-Period Adjustment: During the second quarter of 2021, a formula error was identified in the spreadsheet used to calculate and record the present values of right-to-use assets consisting of several banking offices along with various printer and copy machines. As a result, Premises and Equipment, Net and Other Liabilities on our Consolidated Balance Sheets were understated by $2.8 million and $2.7 million as of December 31, 2020 and March 31, 2021, respectively. There was no impact to our Consolidated Statements of Income. We evaluated the impact, both individually and in the aggregate, and determined these out-of-period adjustments were not material to our Consolidated Balance Sheets in the respective impacted periods.

XML

Note 2 - Securities

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

2.    SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
U.S. Government agency debt obligations	$	368,990,000	$	350,000	$	(4,954,000	)	$	364,386,000
Mortgage-backed securities		39,299,000		698,000		(544,000	)		39,453,000
Municipal general obligation bonds		130,681,000		4,207,000		(278,000	)		134,610,000
Municipal revenue bonds		20,468,000		327,000		(180,000	)		20,615,000
Other investments		500,000		0		0			500,000
	$	559,938,000	$	5,582,000	$	(5,956,000	)	$	559,564,000
December 31, 2020
U.S. Government agency debt obligations	$	242,522,000	$	516,000	$	(897,000	)	$	242,141,000
Mortgage-backed securities		23,869,000		1,021,000		0			24,890,000
Municipal general obligation bonds		101,991,000		5,833,000		0			107,824,000
Municipal revenue bonds		11,521,000		473,000		(2,000	)		11,992,000
Other investments		500,000		0		0			500,000
	$	380,403,000	$	7,843,000	$	(899,000	)	$	387,347,000

Securities with unrealized losses at September 30, 2021 and December 31, 2020, 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				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. Government agency debt obligations	$	274,190,000	$	3,974,000	$	48,317,000	$	980,000	$	322,507,000	$	4,954,000
Mortgage-backed securities		23,578,000		544,000		23,000		0		23,601,000		544,000
Municipal general obligation bonds		32,180,000		278,000		0		0		32,180,000		278,000
Municipal revenue bonds		11,098,000		158,000		820,000		22,000		11,918,000		180,000
	$	341,046,000	$	4,954,000	$	49,160,000	$	1,002,000	$	390,206,000	$	5,956,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2020
U.S. Government agency debt obligations	$	118,650,000	$	897,000	$	0	$	0	$	118,650,000	$	897,000
Mortgage-backed securities		0		0		0		0		0		0
Municipal general obligation bonds		0		0		0		0		0		0
Municipal revenue bonds		423,000		2,000		0		0		423,000		2,000
	$	119,073,000	$	899,000	$	0	$	0	$	119,073,000	$	899,000

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. 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 September 30, 2021, 291 debt securities with fair values totaling $390 million had unrealized losses aggregating $6.0 million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at September 30, 2021, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted Average Yield			Amortized Cost		Fair Value
Due in 2021		2.25	%	$	545,000	$	547,000
Due in 2022 through 2026		1.01			187,220,000		188,005,000
Due in 2027 through 2031		1.56			266,478,000		265,719,000
Due in 2032 and beyond		1.98			65,896,000		65,340,000
Mortgage-backed securities		1.76			39,299,000		39,453,000
Other investments		3.75			500,000		500,000
Total available for sale securities		1.44	%	$	559,938,000	$	559,564,000

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $148 million and $109 million at September 30, 2021 and December 31, 2020, respectively, with estimated market values of $153 million and $116 million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of $2.7 million and $4.1 million at September 30, 2021 and December 31, 2020, respectively, with estimated market values of $2.7 million and $4.2 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations that are pledged to secure repurchase agreements was $176 million and $118 million at September 30, 2021 and December 31, 2020, respectively. Investments in Federal Home Loan Bank stock are restricted and may only be resold or redeemed by the issuer.

XML

Note 3 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Our total loans at September 30, 2021 were $3.31 billion compared to $3.19 billion at December 31, 2020, an increase of $120 million, or 3.8%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2021 and December 31, 2020, and the percentage change in loans from the end of 2020 to the end of the third quarter of 2021, are as follows:

											Percent
	September 30, 2021					December 31, 2020					Increase
	Balance		%			Balance		%			(Decrease)
Commercial:
Commercial and industrial (1)	$	1,074,394,000		32.4	%	$	1,145,423,000		35.9	%		(6.2	%)
Vacant land, land development, and residential construction		38,380,000		1.2			55,055,000		1.7			(30.3	)
Real estate – owner occupied		551,762,000		16.7			529,953,000		16.6			4.1
Real estate – non-owner occupied		998,697,000		30.1			917,436,000		28.7			8.9
Real estate – multi-family and residential rental		179,126,000		5.4			146,095,000		4.6			22.6
Total commercial		2,842,359,000		85.8			2,793,962,000		87.5			1.7
Retail:
Home equity and other		59,732,000		1.8			61,620,000		1.9			(3.1	)
1-4 family mortgages		411,618,000		12.4			337,888,000		10.6			21.8
Total retail		471,350,000		14.2			399,508,000		12.5			18.0
Total loans	$	3,313,709,000		100.0	%	$	3,193,470,000		100.0	%		3.8	%

(1) Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

Nonperforming loans as of September 30, 2021 and December 31, 2020 were as follows:

	September 30, 2021		December 31, 2020
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,766,000		3,384,000
Total nonperforming loans	$	2,766,000	$	3,384,000

The recorded principal balance of nonperforming loans was as follows:

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	673,000	$	172,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		0		619,000
Real estate – non-owner occupied		0		22,000
Real estate – multi-family and residential rental		0		0
Total commercial		673,000		813,000
Retail:
Home equity and other		142,000		242,000
1-4 family mortgages		1,951,000		2,329,000
Total retail		2,093,000		2,571,000
Total nonperforming loans	$	2,766,000	$	3,384,000

An age analysis of past due loans is as follows as of September 30, 2021:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	0	$	0	$	44,000	$	44,000	$	1,074,350,000	$	1,074,394,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		38,380,000		38,380,000		0
Real estate – owner occupied		0		0		0		0		551,762,000		551,762,000		0
Real estate – non-owner occupied		0		0		0		0		998,697,000		998,697,000		0
Real estate – multi-family and residential rental		0		0		0		0		179,126,000		179,126,000		0
Total commercial		0		0		44,000		44,000		2,842,315,000		2,842,359,000		0
Retail:
Home equity and other		103,000		11,000		35,000		149,000		59,583,000		59,732,000		0
1-4 family mortgages		315,000		363,000		224,000		902,000		410,716,000		411,618,000		0
Total retail		418,000		374,000		259,000		1,051,000		470,299,000		471,350,000		0
Total past due loans	$	418,000	$	374,000	$	303,000	$	1,095,000	$	3,312,614,000	$	3,313,709,000	$	0

An age analysis of past due loans is as follows as of December 31, 2020:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	261,000	$	172,000	$	0	$	433,000	$	1,144,990,000	$	1,145,423,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		55,055,000		55,055,000		0
Real estate – owner occupied		0		197,000		421,000		618,000		529,335,000		529,953,000		0
Real estate – non-owner occupied		0		0		23,000		23,000		917,413,000		917,436,000		0
Real estate – multi-family and residential rental		0		0		0		0		146,095,000		146,095,000		0
Total commercial		261,000		369,000		444,000		1,074,000		2,792,888,000		2,793,962,000		0
Retail:
Home equity and other		112,000		65,000		54,000		231,000		61,389,000		61,620,000		0
1-4 family mortgages		1,147,000		247,000		342,000		1,736,000		336,152,000		337,888,000		0
Total retail		1,259,000		312,000		396,000		1,967,000		397,541,000		399,508,000		0
Total past due loans	$	1,520,000	$	681,000	$	840,000	$	3,041,000	$	3,190,429,000	$	3,193,470,000	$	0

Impaired loans as of September 30, 2021, and average impaired loans for the three and nine months ended September 30, 2021, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	2,900,000	$	2,843,000		$	2,759,000	$	3,836,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		12,674,000		12,674,000			12,674,000		13,374,000
Real estate – non-owner occupied		0		0			0		163,000
Real estate – multi-family and residential rental		92,000		92,000			46,000		23,000
Total commercial		15,666,000		15,609,000			15,479,000		17,396,000
Retail:
Home equity and other		1,291,000		1,208,000			1,223,000		1,093,000
1-4 family mortgages		3,496,000		2,285,000			2,256,000		2,403,000
Total retail		4,787,000		3,493,000			3,479,000		3,496,000
Total with no related allowance recorded	$	20,453,000	$	19,102,000		$	18,958,000	$	20,892,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	2,802,000	$	2,802,000	$	449,000	$	2,888,000	$	1,617,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		775,000		775,000		89,000		994,000		813,000
Real estate – non-owner occupied		151,000		151,000		6,000		152,000		156,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		3,728,000		3,728,000		544,000		4,034,000		2,586,000
Retail:
Home equity and other		182,000		163,000		142,000		197,000		232,000
1-4 family mortgages		416,000		416,000		79,000		472,000		569,000
Total retail		598,000		579,000		221,000		669,000		801,000
Total with an allowance recorded	$	4,326,000	$	4,307,000	$	765,000	$	4,703,000	$	3,387,000
Total impaired loans:
Commercial	$	19,394,000	$	19,337,000	$	544,000	$	19,513,000	$	19,982,000
Retail		5,385,000		4,072,000		221,000		4,148,000		4,297,000
Total impaired loans	$	24,779,000	$	23,409,000	$	765,000	$	23,661,000	$	24,279,000

Impaired loans as of December 31, 2020, and average impaired loans for the three and nine months ended September 30, 2020, were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	6,242,000	$	6,242,000		$	7,416,000	$	8,282,000
Vacant land, land development and residential construction		0		0			326,000		234,000
Real estate – owner occupied		14,782,000		14,593,000			3,645,000		3,053,000
Real estate – non-owner occupied		341,000		341,000			309,000		199,000
Real estate – multi-family and residential rental		0		0			0		3,000
Total commercial		21,365,000		21,176,000			11,696,000		11,771,000
Retail:
Home equity and other		1,072,000		987,000			1,305,000		1,273,000
1-4 family mortgages		4,455,000		2,575,000			2,505,000		2,415,000
Total retail		5,527,000		3,562,000			3,810,000		3,688,000
Total with no related allowance recorded	$	26,892,000	$	24,738,000		$	15,506,000	$	15,459,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	343,000	$	343,000	$	53,000	$	940,000	$	1,128,000
Vacant land, land development and residential construction		0		0		0		0		96,000
Real estate – owner occupied		763,000		734,000		77,000		436,000		538,000
Real estate – non-owner occupied		162,000		162,000		8,000		168,000		84,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		1,268,000		1,239,000		138,000		1,544,000		1,846,000
Retail:
Home equity and other		300,000		283,000		241,000		470,000		455,000
1-4 family mortgages		698,000		698,000		172,000		653,000		569,000
Total retail		998,000		981,000		413,000		1,123,000		1,024,000
Total with an allowance recorded	$	2,266,000	$	2,220,000	$	551,000	$	2,667,000	$	2,870,000
Total impaired loans:
Commercial	$	22,633,000	$	22,415,000	$	138,000	$	13,240,000	$	13,617,000
Retail		6,525,000		4,543,000		413,000		4,933,000		4,712,000
Total impaired loans	$	29,158,000	$	26,958,000	$	551,000	$	18,173,000	$	18,329,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated fair value. Interest income recognized on accruing troubled debt restructurings totaled $0.4 million and $0.2 million during the third quarters of 2021 and 2020, respectively, and $1.2 million and $0.8 million during the first nine months of 2021 and 2020, respectively. No interest income was recognized on nonaccrual loans during the third quarter and first nine months of 2021 or during the respective 2020 periods. Lost interest income on nonaccrual loans totaled less than $0.1 million and $0.1 million during the third quarters of 2021 and 2020, respectively, and $0.1 million and $0.2 million during the first nine months of 2021 and 2020, respectively.

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of September 30, 2021:

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	706,369,000	$	23,336,000	$	324,000,000	$	450,779,000	$	104,531,000
Grades 5 – 7		364,529,000		14,941,000		212,733,000		534,165,000		74,439,000
Grades 8 – 9		3,496,000		103,000		15,029,000		13,753,000		156,000
Total commercial	$	1,074,394,000	$	38,380,000	$	551,762,000	$	998,697,000	$	179,126,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	59,590,000	$	409,667,000
Nonperforming		142,000		1,951,000
Total retail	$	59,732,000	$	411,618,000

(1) Included in Commercial and Industrial Loans Grades 1 – 4 are $116 million of loans originated under the Paycheck Protection Program.

Credit quality indicators were as follows as of December 31, 2020:

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	828,706,000	$	22,547,000	$	315,134,000	$	396,700,000	$	91,711,000
Grades 5 – 7		306,614,000		32,398,000		185,541,000		520,395,000		54,111,000
Grades 8 – 9		10,103,000		110,000		29,278,000		341,000		273,000
Total commercial	$	1,145,423,000	$	55,055,000	$	529,953,000	$	917,436,000	$	146,095,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	61,378,000	$	335,559,000
Nonperforming		242,000		2,329,000
Total retail	$	61,620,000	$	337,888,000

(1) Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program.

All commercial loans are graded using the following criteria:

Grade 1. “Exceptional”  Loans with this rating contain very little, if any, risk.

Grade 2. “Outstanding”  Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements.

Grade 3. “Very Good”  Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable.

Grade 4. “Good”  Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest.

Grade 5. “Acceptable”  Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are loans for which repayment risks are satisfactory.

Grade 6. “Monitor”  Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report.

Grade 7. “Special Mention”  Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Grade 8. “Substandard”  Loans with this rating are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Grade 9. “Doubtful”  Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable.

Grade 10. “Loss”  Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted.

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

Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and nine months ended September 30, 2021 are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2021	$	32,092,000		$	3,636,000		$	185,000	$	35,913,000
Provision for loan losses		1,859,000			41,000			0		1,900,000
Charge-offs		(690,000	)		(53,000	)		0		(743,000	)
Recoveries		221,000			132,000			0		353,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Allowance for loan losses:
Balance at December 31, 2020	$	33,779,000		$	4,129,000		$	59,000	$	37,967,000
Provision for loan losses		(271,000	)		(755,000	)		126,000		(900,000	)
Charge-offs		(771,000	)		(94,000	)		0		(865,000	)
Recoveries		745,000			476,000			0		1,221,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Ending balance: individually evaluated for impairment	$	544,000		$	221,000		$	0	$	765,000
Ending balance: collectively evaluated for impairment	$	32,938,000		$	3,535,000		$	185,000	$	36,658,000
Total loans (*):
Ending balance	$	2,726,706,000		$	471,350,000				$	3,198,056,000
Ending balance: individually evaluated for impairment	$	19,337,000		$	4,072,000				$	23,409,000
Ending balance: collectively evaluated for impairment	$	2,707,369,000		$	467,278,000				$	3,174,647,000

(*) Excludes $116 million in loans originated under the Paycheck Protection Program.

Activity in the allowance for loan losses for loans during the three and nine months ended September 30, 2020 and the recorded investments in loans as of December 31, 2020 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2020	$	27,962,000		$	4,224,000		$	60,000		$	32,246,000
Provision for loan losses		3,499,000			(266,000	)		(33,000	)		3,200,000
Charge-offs		(45,000	)		(78,000	)		0			(123,000	)
Recoveries		194,000			55,000			0			249,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Allowance for loan losses:
Balance at December 31, 2019	$	21,070,000		$	2,749,000		$	70,000		$	23,889,000
Provision for loan losses		10,539,000			1,054,000			(43,000	)		11,550,000
Charge-offs		(360,000	)		(139,000	)		0			(499,000	)
Recoveries		361,000			271,000			0			632,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Ending balance: individually evaluated for impairment	$	480,000		$	430,000		$	0		$	910,000
Ending balance: collectively evaluated for impairment	$	31,130,000		$	3,505,000		$	27,000		$	34,662,000
Total loans (*):
Ending balance	$	2,428,703,000		$	399,508,000					$	2,828,211,000
Ending balance: individually evaluated for impairment	$	22,415,000		$	4,543,000					$	26,958,000
Ending balance: collectively evaluated for impairment	$	2,406,288,000		$	394,965,000					$	2,801,253,000

(*) Excludes $365 million in loans originated under the Paycheck Protection Program.

Loans modified as troubled debt restructurings during the three months ended September 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	186,000	$	185,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		3		279,000		278,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total retail		0		0		0
Total loans		3	$	279,000	$	278,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		10	$	3,017,000	$	3,016,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		692,000		692,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		12		3,802,000		3,801,000
Retail:
Home equity and other		4		485,000		482,000
1-4 family mortgages		2		46,000		46,000
Total retail		6		531,000		528,000
Total loans		18	$	4,333,000	$	4,329,000

Loans modified as troubled debt restructurings during the three months ended September 30, 2020 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	7,000	$	7,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		56,000		56,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		5		634,000		634,000
Retail:
Home equity and other		5		82,000		83,000
1-4 family mortgages		2		68,000		67,000
Total retail		7		150,000		150,000
Total loans		12	$	784,000	$	784,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2020 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		8	$	6,485,000	$	6,491,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		7		3,508,000		2,906,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		17		10,564,000		9,968,000
Retail:
Home equity and other		14		422,000		423,000
1-4 family mortgages		3		88,000		87,000
Total retail		17		510,000		510,000
Total loans		34	$	11,074,000	$	10,478,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2021 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2021 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2020 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2020 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		31,000
Total retail		1		31,000
Total		1	$	31,000

Activity for loans categorized as troubled debt restructurings during the three months ended September 30, 2021 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	5,563,000		$	0	$	13,888,000		$	153,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(75,000	)		0		(439,000	)		(2,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		184,000			0		0			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,396,000		$	699,000
Charge-Offs		0			0
Payments		(91,000	)		(51,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	1,305,000		$	648,000

Activity for loans categorized as troubled debt restructurings during the nine months ended September 30, 2021 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	6,414,000		$	0	$	14,797,000		$	480,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(3,596,000	)		0		(2,034,000	)		(329,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		2,854,000			0		686,000			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,146,000		$	806,000
Charge-Offs		0			0
Payments		(323,000	)		(204,000	)
Transfers to ORE		0			0
Net Additions/Deletions		482,000			46,000
Ending Balance	$	1,305,000		$	648,000

Activity for loans categorized as troubled debt restructurings during the three months ended September 30, 2020 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	10,067,000		$	80,000		$	3,791,000		$	170,000		$	1,000
Charge-Offs		0			0			0			0			0
Payments		(3,537,000	)		(80,000	)		(827,000	)		(4,000	)		(1,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		7,000			0			55,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,715,000		$	715,000
Charge-Offs		0			0
Payments		(220,000	)		(17,000	)
Transfers to ORE		0			0
Net Additions/Deletions		82,000			69,000
Ending Balance	$	1,577,000		$	767,000

Activity for loans categorized as troubled debt restructurings during the nine months ended September 30, 2020 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	8,587,000		$	85,000		$	1,145,000		$	178,000		$	7,000
Charge-Offs		0			0			0			0			0
Payments		(8,512,000	)		(85,000	)		(1,836,000	)		(12,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		6,462,000			0			3,710,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,415,000		$	724,000
Charge-Offs		0			0
Payments		(423,000	)		(46,000	)
Transfers to ORE		0			0
Net Additions/Deletions		585,000			89,000
Ending Balance	$	1,577,000		$	767,000

The allowance related to loans categorized as troubled debt restructurings was as follows:

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	311,000	$	53,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		89,000		59,000
Real estate – non-owner occupied		6,000		8,000
Real estate – multi-family and residential rental		0		0
Total commercial		406,000		120,000
Retail:
Home equity and other		113,000		202,000
1-4 family mortgages		79,000		145,000
Total retail		192,000		347,000
Total related allowance	$	598,000	$	467,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal. We believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

XML

Note 4 - Premises and Equipment, Net

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.    PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	September 30, 2021		December 31, 2020
Land and improvements	$	15,097,000	$	16,533,000
Buildings		55,579,000		56,114,000
Furniture and equipment		22,231,000		21,522,000
		92,907,000		94,169,000
Less: accumulated depreciation		35,442,000		35,210,000
Premises and equipment, net	$	57,465,000	$	58,959,000

Depreciation expense totaled $1.5 million and $1.3 million during the third quarters of 2021 and 2020, respectively. Depreciation expense totaled $4.3 million during the first nine months of 2021, compared to $3.8 million during the first nine months of 2020.

XML

Note 5 - Deposits

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

5.    DEPOSITS

Our total deposits at September 30, 2021 totaled $3.87 billion, an increase of $457 million, or 13.4%, from December 31, 2020. The components of our outstanding balances at September 30, 2021 and December 31, 2020, and percentage change in deposits from the end of 2020 to the end of the third quarter of 2021, are as follows:

	September 30, 2021					December 31, 2020					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	1,647,380,000		42.6	%	$	1,433,403,000		42.0	%		14.9	%
Interest-bearing checking		535,983,000		13.9			473,053,000		13.9			13.3
Money market		854,763,000		22.1			611,912,000		17.9			39.7
Savings		392,298,000		10.1			338,070,000		9.9			16.0
Time, under $100,000		139,031,000		3.6			165,548,000		4.9			(16.0	)
Time, $100,000 and over		275,623,000		7.1			342,633,000		10.0			(19.6	)
Total local deposits		3,845,078,000		99.4			3,364,619,000		98.6			14.3
Out-of-area time, $100,000 and over		23,913,000		0.6			46,934,000		1.4			(49.0	)
Total deposits	$	3,868,991,000		100.0	%	$	3,411,553,000		100.0	%		13.4	%

Total time deposits of more than $250,000 totaled $202 million and $272 million at September 30, 2021 and December 31, 2020, respectively.

XML

Note 6 - Securities Sold Under Agreements to Repurchase

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]

6.     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Nine Months Ended September 30, 2021			Twelve Months Ended December 31, 2020
Outstanding balance at end of period	$	175,850,000		$	118,365,000
Average interest rate at end of period		0.11	%		0.12	%
Average daily balance during the period	$	151,522,000		$	132,880,000
Average interest rate during the period		0.11	%		0.12	%
Maximum daily balance during the period	$	195,570,000		$	173,186,000

Repurchase agreements generally have original maturities of less than one year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Federal Home Loan Bank Advances, Disclosure [Text Block]

7.     FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled $394 million at September 30, 2021 and December 31, 2020, and were expected to mature at varying dates from November 2021 through June 2027, with fixed rates of interest from 0.55% to 3.18% and averaging 2.06% as of both dates.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. 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 September 30, 2021 totaled $760 million, with remaining availability based on collateral equaling $360 million.

Maturities of currently outstanding FHLBI advances are as follows:

2021	$	20,000,000
2022		94,000,000
2023		80,000,000
2024		80,000,000
2025		50,000,000
Thereafter		70,000,000

XML

Note 8 - Commitments and Off-balance Sheet Risk

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

8.     COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and recorded as a liability. There was no liability balance for these instruments as of September 30, 2021 and December 31, 2020.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at September 30, 2021 and December 31, 2020 follows:

	September 30, 2021		December 31, 2020
Commercial unused lines of credit	$	1,080,801,000	$	1,019,496,000
Unused lines of credit secured by 1 – 4 family residential properties		60,859,000		59,396,000
Credit card unused lines of credit		88,013,000		72,495,000
Other consumer unused lines of credit		61,047,000		30,707,000
Commitments to make loans		253,124,000		227,558,000
Standby letters of credit		29,375,000		20,543,000
	$	1,573,219,000	$	1,430,195,000

XML

Note 9 - Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

9.  DERIVATIVES AND HEDGING ACTIVITIES

We are exposed to certain risks arising from both business operations and economic conditions. We principally manage the exposure to a wide variety of operational risks through core business activities. Economic risks, including interest rate, liquidity and credit risk, are primarily administered via the amount, sources and duration of assets and liabilities. Derivative financial instruments may also be used to assist in managing economic risks.

Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. We execute interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent bank are recognized directly to earnings.

The estimated fair values of derivative instruments as of September 30, 2021 are reflected in the following table.

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	214,368,000	Other Assets	$	5,031,000
Derivative Liabilities
Interest rate swaps		214,368,000	Other Liabilities		5,250,000

The effect of interest rate swaps that are not designated as hedging instruments resulted in noninterest expense of $0.2 million during the first nine months of 2021.

The estimated fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $5.3 million as of September 30, 2021. Cash collateral totaling $4.6 million was provided to the counterparty correspondent bank as of September 30, 2021.

Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $214 million as of September 30, 2021. Associated credit exposure is generally mitigated by securing the interest rates swaps with the underlying collateral of the loan instrument that has been hedged.

The estimated fair values of derivative instruments as of December 31, 2020 are reflected in the following table.

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	33,731,000	Other Assets	$	1,003,000
Derivative Liabilities
Interest rate swaps		33,731,000	Other Liabilities		1,027,000

The effect of interest rate swaps that are not designated as hedging instruments resulted in noninterest expense of less than $0.1 million during the year-ended December 31, 2020.

The estimated fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $1.0 million as of December 31, 2020. Cash collateral totaling $1.1 million was provided to the counterparty correspondent bank as of December 31, 2020.

Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $33.7 million as of December 31, 2020. Associated credit exposure is generally mitigated by securing the interest rates swaps with the underlying collateral of the loan instrument that has been hedged.

XML

Note 10 - Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

10.  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 September 30, 2021 and December 31, 2020 (dollars in thousands):

	Level in	September 30, 2021				December 31, 2020
	Fair Value Hierarchy	Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash	Level 1	$	17,709	$	17,709	$	16,953	$	16,953
Cash equivalents	Level 2		807,652		807,652		609,053		609,053
Securities available for sale	(1)		559,564		559,564		387,347		387,347
FHLBI stock	(2)		18,002		18,002		18,002		18,002
Loans, net	Level 3		3,276,286		3,386,378		3,155,503		3,294,522
Mortgage loans held for sale	Level 2		47,247		49,107		22,888		24,029
Mortgage servicing rights	Level 2		11,146		14,321		8,189		10,006
Accrued interest receivable	Level 2		9,986		9,986		10,861		10,861
Financial liabilities:
Deposits	Level 2		3,868,991		3,949,449		3,411,553		3,397,768
Repurchase agreements	Level 2		175,850		175,850		118,365		118,365
FHLBI advances	Level 2		394,000		406,002		394,000		410,881
Subordinated debentures	Level 2		48,074		47,980		47,563		47,574
Accrued interest payable	Level 2		1,406		1,406		2,313		2,313

(1) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount.

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. Fair value for loans is based on an exit price model as required by ASU 2016-01, taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. Fair value for deposit accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair value of mortgage servicing rights is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The fair values of subordinated debentures and FHLBI advances are based on current rates for similar financing. The fair value of off-balance sheet items is estimated to be nominal.

XML

Note 11 - Fair Values

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

11.  FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability. 

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, and municipal general obligation and revenue bonds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. 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 September 30, 2021 or December 31, 2020. We have no Level 1 securities available for sale.

Derivatives. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves.

Mortgage loans held for sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of September 30, 2021 and December 31, 2020, we determined the fair value of our mortgage loans held for sale to be $49.1 million and $24.0 million, respectively.

Loans. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off. The fair values of impaired loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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 September 30, 2021 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	364,386,000	$	0	$	364,386,000	$	0
Mortgage-backed securities		39,453,000		0		39,453,000		0
Municipal general obligation bonds		134,610,000		0		133,893,000		717,000
Municipal revenue bonds		20,615,000		0		20,615,000		0
Other investments		500,000		0		500,000		0
Total	$	559,564,000	$	0	$	558,847,000	$	717,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during the first nine months of 2021. The less than $0.1 million reduction in Level 3 municipal general obligation bonds during the first nine months of 2021 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, 2020 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	242,141,000	$	0	$	242,141,000	$	0
Mortgage-backed securities		24,890,000		0		24,890,000		0
Municipal general obligation bonds		107,824,000		0		107,058,000		766,000
Municipal revenue bonds		11,992,000		0		11,992,000		0
Other investments		500,000		0		500,000		0
Total	$	387,347,000	$	0	$	386,581,000	$	766,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during 2020.

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 September 30, 2021 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	4,286,000	$	0	$	0	$	4,286,000
Foreclosed assets		111,000		0		0		111,000
Total	$	4,397,000	$	0	$	0	$	4,397,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2020 are as follows:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,880,000	$	0	$	0	$	2,880,000
Foreclosed assets		701,000		0		0		701,000
Total	$	3,581,000	$	0	$	0	$	3,581,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a 15% to 25% discount factor for commercial-related properties, and a 25% to 50% discount factor for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

XML

Note 12 - Regulatory Matters

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

12.  REGULATORY MATTERS

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. At September 30, 2021 and December 31, 2020, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since September 30, 2021 that we believe have changed our bank’s categorization.

Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total capital (to risk weighted assets)
Consolidated	$	484,594		12.5	%	$	310,930		8.0	%	$	NA		NA
Bank		482,625		12.4			310,796		8.0			388,495		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		448,010		11.5			233,197		6.0			NA		NA
Bank		445,202		11.5			233,097		6.0			310,796		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		402,010		10.3			174,898		4.5			NA		NA
Bank		445,202		11.5			174,823		4.5			252,522		6.5
Tier 1 capital (to average assets)
Consolidated		448,010		9.3			192,098		4.0			NA		NA
Bank		445,202		9.3			192,031		4.0			240,039		5.0

December 31, 2020
Total capital (to risk weighted assets)
Consolidated	$	468,113	13.8	%	$	271,325	8.0	%	$	NA	NA
Bank		457,203	13.5			271,196	8.0			338,995	10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		430,146	12.7			203,494	6.0			NA	NA
Bank		419,236	12.4			203,397	6.0			271,196	8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		384,658	11.3			152,621	4.5			NA	NA
Bank		419,236	12.4			152,548	4.5			220,347	6.5
Tier 1 capital (to average assets)
Consolidated		430,146	9.8			176,053	4.0			NA	NA
Bank		419,236	9.5			175,999	4.0			219,999	5.0

Our consolidated capital levels as of September 30, 2021 and December 31, 2020 include $46.0 million and $45.5 million, respectively, of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. 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 September 30, 2021 and December 31, 2020, all $46.0 million and $45.5 million, respectively, 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. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. 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 September 30, 2021, 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 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that was paid on March 17, 2021 to shareholders of record as of March 5, 2021. On April 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that was paid on June 16, 2021 to shareholders of record as of June 4, 2021. On July 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that was paid on September 15, 2021 to shareholders of record as of September 3, 2021. On October 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that will be paid on December 15, 2021 to shareholders of record as of December 3, 2021.

In May 2021, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. This program replaces a similar $20.0 million program that had been announced in May 2019 that was nearing exhaustion. During the first nine months of 2021, we repurchased a total of approximately 636,000 shares at a total price of $19.8 million, at an average price per share of $31.14. Availability under the repurchase plan totaled $8.4 million as of September 30, 2021. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Basis of Presentation: The unaudited financial statements for the nine months ended September 30, 2021 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s subsidiary Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. 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 September 30, 2021 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, 2020.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Effect of Covid-19 Pandemic, Policy [Policy Text Block]

Coronavirus Pandemic: There remains a significant amount of stress and uncertainty across national and global economies due to the ongoing pandemic of coronavirus disease 2019 (“Covid-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “Coronavirus Pandemic”). This uncertainty is heightened as certain geographic areas continue to experience surges in Covid-19 cases and governments at all levels continue to react to changes in circumstances, including supply chain disruptions and inflationary pressures.

The Coronavirus Pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. We continue to occupy an asset-sensitive position, whereby interest rate environments characterized by numerous and/or high magnitude interest rate reductions have a negative impact on our net interest income and net income. Additionally, the consequences of the unprecedented economic impact of the Coronavirus Pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance and reduced net income.

The following section summarizes the primary measures that directly impact us and our customers.

● Paycheck Protection Program

The Paycheck Protection Program (“PPP”) reflects a substantial expansion of the Small Business Administration’s 100% guaranteed 7(a) loan program. The CARES Act authorized up to $350 billion in loans to businesses with fewer than 500 employees, including non-profit organizations, tribal business concerns, self-employed and individual contractors. The PPP provides 100% guaranteed loans to cover specific operating costs. PPP loans are eligible to be forgiven based upon certain criteria. In general, the amount of the loan that is forgivable is the sum of the payroll costs, interest payments on mortgages, rent and utilities incurred or paid by the business during a prescribed period beginning on the loan origination date. Any remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan. The interest rate on the loan is fixed at 1.00%, with the financial institution receiving a loan origination fee paid by the Small Business Administration. The loan origination fees, net of the direct origination costs, are accreted into interest income on loans using the level yield methodology. The program ended on August 8, 2020. We originated approximately 2,200 loans aggregating $553 million. As of September 30, 2021, we recorded forgiveness transactions on over 2,100 loans aggregating $550 million. Net loan origination fees of $3.7 million were recorded during the first nine months of 2021.

The Consolidated Appropriations Act, 2021 authorized an additional $284 billion in Second Draw PPP loans (“Second Draw”). The program ended on May 31, 2021. Under the Second Draw, we originated approximately 1,200 loans aggregating $209 million. As of September 30, 2021, we recorded forgiveness transactions on about 600 loans aggregating $95.9 million. Net loan origination fees of $4.8 million were recorded during the first nine months of 2021 under the Second Draw.

A PPP loan is assigned a risk weight of 0% under the risk-based capital rules of the federal banking agencies.

● Individual Economic Impact Payments

The Internal Revenue Service has made three rounds of Individual Economic Impact Payments via direct deposit or mailed checks. In general, and subject to adjusted gross income limitations, qualifying individuals have received payments of $1,200 in April 2020, $600 in January 2021 and $1,400 in March 2021.

● Troubled Debt Restructuring Relief

From March 1, 2020 through 60 days after the end of the National Emergency (or December 31, 2020 if earlier), a financial institution may elect to suspend GAAP principles and regulatory determinations with respect to loan modifications related to Covid-19 that would otherwise be categorized as troubled debt restructurings. Banking agencies must defer to the financial institution’s election. We elected to suspend GAAP principles and regulatory determinations as permitted. The Consolidated Appropriations Act, 2021 extended the suspension date to January 1, 2022.

● Current Expected Credit Loss Methodology Delay 

Financial institutions are not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the National Emergency or December 31, 2020. We elected to postpone CECL adoption as permitted. The Consolidated Appropriations Act, 2021 extended the adoption deferral date to January 1, 2022.

In early April 2020, in response to the early stages of the Coronavirus Pandemic and its pervasive impact across the economy and financial markets, we developed internal programs of loan payment deferments for commercial and retail borrowers. For commercial borrowers, we offered 90-day (three payments) interest only amendments as well as 90-day (three payments) principal and interest payment deferments. Under the latter program, borrowers were extended a 12-month single payment note at 0% interest in an amount equal to three payments, with loan proceeds used to make the scheduled payments. The single payment notes receive a loan grade equal to the loan grade of each respective borrowing relationship. Certain of our commercial loan borrowers subsequently requested and received an additional 90-day (three payments) interest only amendment or 90-day (three payments) principal and interest payment deferment. Under the latter program, the amount equal to the three payments was added to the original deferment note which has nine months remaining to maturity; however, the original 0% interest rate is modified to equal the rate associated with each borrower’s traditional lending relationship with us for the remainder of the term. At the peak of activity in mid-2020, nearly 750 borrowers with loan balances aggregating $719 million were participating in the commercial loan deferment program. As of September 30, 2021, we had no loans in the commercial loan deferment program.

For retail borrowers, we offered 90-day (three payments) principal and interest payment deferments, with deferred amounts added to the end of the loan. As of September 30, 2020, we had processed 260 principal and interest payment deferments with loan balances totaling $23.8 million. As of September 30, 2021, only six borrowers with loan balances aggregating $0.5 million remained in the retail loan payment deferment program.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. 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 260,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2021. In addition, stock options for approximately 3,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2021. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2021.

Approximately 255,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2020. In addition, stock options for approximately 2,000 shares of common stock were included in determining diluted earnings per share for the three and nine months ended September 30, 2020. Stock options for approximately 9,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three and nine months ended September 30, 2020.

Marketable Securities, Policy [Policy Text Block]

Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other-than-temporary impairment (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Financing Receivable, Held-for-investment [Policy Text Block]

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

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. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Financing Receivable, Held-for-sale [Policy Text Block]

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of September 30, 2021 and December 31, 2020, we determined the fair value of our mortgage loans held for sale to be $49.1 million and $24.0 million, respectively.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make an interest rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income. Mortgage loans serviced for others totaled approximately $1.26 billion and $1.04 billion as of September 30, 2021, and December 31, 2020, respectively.

Mortgage Banking Activity [Policy Text Block]

    Mortgage Banking Activities: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. 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. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructuring [Policy Text Block]

Troubled Debt Restructurings: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

The federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” on March 22, 2020, which was subsequently revised on April 7, 2020. This guidance encourages financial institutions to work prudently with borrowers that are or may be unable to meet their contractual obligations because of the effects of the Coronavirus Pandemic. Pursuant to the guidance, the federal banking agencies concluded, in consultation with FASB staff, that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current prior to any relief are not troubled debt restructurings. This guidance complements Section 4013 of the CARES Act, which specified that Coronavirus-related modifications made on loans that were current as of December 31, 2019 and that occur between March 1, 2020 and the earlier of 60 days after the date of termination of the National Emergency declared by President Trump on March 13, 2020 (the “National Emergency”) or December 31, 2020, as applicable, are not troubled debt restructurings. As part of the Consolidated Appropriations Act that was enacted in late 2020, this guidance was extended to January 1, 2022.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. We estimate credit losses based on individual loans determined to be impaired and on all other loans grouped on similar risk characteristics. Our historical loss component is generally the most significant of the allowance components and is based on historical loss experience by credit risk grade for commercial loans and payment status for mortgage and consumer loans. Loans are pooled based on similar risk characteristics supported by observable data. The historical loss experience component of the allowance represents the results of migration analysis of historical net charge-offs for portfolios of loans, including groups of commercial loans within each credit risk grade. For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected future losses to be realized from the pool of loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative environmental factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, competition, increasing interest rates, external factors, Coronavirus Pandemic environment, and other considerations. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted. Loans made under PPP are fully guaranteed by the Small Business Administration; therefore, such loans do not have an associated allowance.

Derivatives, Policy [Policy Text Block]

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between the derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Core Deposit Intangible: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We may elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a ten-year period using the sum-of-the-years-digits methodology.

Revenue from Contract with Customer [Policy Text Block]

Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis (generally monthly) or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

New Accounting Pronouncements, Policy [Policy Text Block]

Adoption of New Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019.

Financial institutions were not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology. As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised. Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL, and have continued to use our incurred loan loss reserve model as permitted.

Disposal Group [Policy Text Block]

Hastings Branch Sale: As previously disclosed in a Current Report on Form 8-K filed on October 26, 2020, we entered into a Purchase and Assumption Agreement (“Agreement”) on October 21, 2020 regarding the sale of our Hastings, Michigan branch office to Lake Trust Credit Union (“Lake Trust”). All regulatory approvals were received and the sale was consummated on May 14, 2021. Under the terms of the Agreement, as amended on April 20, 2021, Lake Trust: 1) purchased $9.7 million in primarily residential mortgage loans at book balance; 2) purchased the branch facility at a price of $1.5 million; and 3) assumed all deposit accounts aggregating $14.6 million at a premium price of 5.0% of the book balance. In conjunction with the sale closing, we recorded a $0.7 million deposit premium and a $0.3 million gain on the sale of the branch facility.

Reclassification, Comparability Adjustment [Policy Text Block]

Out-of-Period Adjustment: During the second quarter of 2021, a formula error was identified in the spreadsheet used to calculate and record the present values of right-to-use assets consisting of several banking offices along with various printer and copy machines. As a result, Premises and Equipment, Net and Other Liabilities on our Consolidated Balance Sheets were understated by $2.8 million and $2.7 million as of December 31, 2020 and March 31, 2021, respectively. There was no impact to our Consolidated Statements of Income. We evaluated the impact, both individually and in the aggregate, and determined these out-of-period adjustments were not material to our Consolidated Balance Sheets in the respective impacted periods.

XML

Note 2 - Securities (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Debt Securities, Available-for-sale [Table Text Block]

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
U.S. Government agency debt obligations	$	368,990,000	$	350,000	$	(4,954,000	)	$	364,386,000
Mortgage-backed securities		39,299,000		698,000		(544,000	)		39,453,000
Municipal general obligation bonds		130,681,000		4,207,000		(278,000	)		134,610,000
Municipal revenue bonds		20,468,000		327,000		(180,000	)		20,615,000
Other investments		500,000		0		0			500,000
	$	559,938,000	$	5,582,000	$	(5,956,000	)	$	559,564,000
December 31, 2020
U.S. Government agency debt obligations	$	242,522,000	$	516,000	$	(897,000	)	$	242,141,000
Mortgage-backed securities		23,869,000		1,021,000		0			24,890,000
Municipal general obligation bonds		101,991,000		5,833,000		0			107,824,000
Municipal revenue bonds		11,521,000		473,000		(2,000	)		11,992,000
Other investments		500,000		0		0			500,000
	$	380,403,000	$	7,843,000	$	(899,000	)	$	387,347,000

Debt Securities, Available-for-sale, Unrealized Loss Position, Fair Value [Table Text Block]

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. Government agency debt obligations	$	274,190,000	$	3,974,000	$	48,317,000	$	980,000	$	322,507,000	$	4,954,000
Mortgage-backed securities		23,578,000		544,000		23,000		0		23,601,000		544,000
Municipal general obligation bonds		32,180,000		278,000		0		0		32,180,000		278,000
Municipal revenue bonds		11,098,000		158,000		820,000		22,000		11,918,000		180,000
	$	341,046,000	$	4,954,000	$	49,160,000	$	1,002,000	$	390,206,000	$	5,956,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2020
U.S. Government agency debt obligations	$	118,650,000	$	897,000	$	0	$	0	$	118,650,000	$	897,000
Mortgage-backed securities		0		0		0		0		0		0
Municipal general obligation bonds		0		0		0		0		0		0
Municipal revenue bonds		423,000		2,000		0		0		423,000		2,000
	$	119,073,000	$	899,000	$	0	$	0	$	119,073,000	$	899,000

Investments Classified by Contractual Maturity Date [Table Text Block]

	Weighted Average Yield			Amortized Cost		Fair Value
Due in 2021		2.25	%	$	545,000	$	547,000
Due in 2022 through 2026		1.01			187,220,000		188,005,000
Due in 2027 through 2031		1.56			266,478,000		265,719,000
Due in 2032 and beyond		1.98			65,896,000		65,340,000
Mortgage-backed securities		1.76			39,299,000		39,453,000
Other investments		3.75			500,000		500,000
Total available for sale securities		1.44	%	$	559,938,000	$	559,564,000

XML

Note 3 - Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

											Percent
	September 30, 2021					December 31, 2020					Increase
	Balance		%			Balance		%			(Decrease)
Commercial:
Commercial and industrial (1)	$	1,074,394,000		32.4	%	$	1,145,423,000		35.9	%		(6.2	%)
Vacant land, land development, and residential construction		38,380,000		1.2			55,055,000		1.7			(30.3	)
Real estate – owner occupied		551,762,000		16.7			529,953,000		16.6			4.1
Real estate – non-owner occupied		998,697,000		30.1			917,436,000		28.7			8.9
Real estate – multi-family and residential rental		179,126,000		5.4			146,095,000		4.6			22.6
Total commercial		2,842,359,000		85.8			2,793,962,000		87.5			1.7
Retail:
Home equity and other		59,732,000		1.8			61,620,000		1.9			(3.1	)
1-4 family mortgages		411,618,000		12.4			337,888,000		10.6			21.8
Total retail		471,350,000		14.2			399,508,000		12.5			18.0
Total loans	$	3,313,709,000		100.0	%	$	3,193,470,000		100.0	%		3.8	%

Financing Receivable, Nonaccrual [Table Text Block]

	September 30, 2021		December 31, 2020
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,766,000		3,384,000
Total nonperforming loans	$	2,766,000	$	3,384,000

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	673,000	$	172,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		0		619,000
Real estate – non-owner occupied		0		22,000
Real estate – multi-family and residential rental		0		0
Total commercial		673,000		813,000
Retail:
Home equity and other		142,000		242,000
1-4 family mortgages		1,951,000		2,329,000
Total retail		2,093,000		2,571,000
Total nonperforming loans	$	2,766,000	$	3,384,000

Financing Receivable, Past Due [Table Text Block]

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	0	$	0	$	44,000	$	44,000	$	1,074,350,000	$	1,074,394,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		38,380,000		38,380,000		0
Real estate – owner occupied		0		0		0		0		551,762,000		551,762,000		0
Real estate – non-owner occupied		0		0		0		0		998,697,000		998,697,000		0
Real estate – multi-family and residential rental		0		0		0		0		179,126,000		179,126,000		0
Total commercial		0		0		44,000		44,000		2,842,315,000		2,842,359,000		0
Retail:
Home equity and other		103,000		11,000		35,000		149,000		59,583,000		59,732,000		0
1-4 family mortgages		315,000		363,000		224,000		902,000		410,716,000		411,618,000		0
Total retail		418,000		374,000		259,000		1,051,000		470,299,000		471,350,000		0
Total past due loans	$	418,000	$	374,000	$	303,000	$	1,095,000	$	3,312,614,000	$	3,313,709,000	$	0

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Commercial:
Commercial and industrial	$	261,000	$	172,000	$	0	$	433,000	$	1,144,990,000	$	1,145,423,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		55,055,000		55,055,000		0
Real estate – owner occupied		0		197,000		421,000		618,000		529,335,000		529,953,000		0
Real estate – non-owner occupied		0		0		23,000		23,000		917,413,000		917,436,000		0
Real estate – multi-family and residential rental		0		0		0		0		146,095,000		146,095,000		0
Total commercial		261,000		369,000		444,000		1,074,000		2,792,888,000		2,793,962,000		0
Retail:
Home equity and other		112,000		65,000		54,000		231,000		61,389,000		61,620,000		0
1-4 family mortgages		1,147,000		247,000		342,000		1,736,000		336,152,000		337,888,000		0
Total retail		1,259,000		312,000		396,000		1,967,000		397,541,000		399,508,000		0
Total past due loans	$	1,520,000	$	681,000	$	840,000	$	3,041,000	$	3,190,429,000	$	3,193,470,000	$	0

Impaired Financing Receivables [Table Text Block]

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	2,900,000	$	2,843,000		$	2,759,000	$	3,836,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		12,674,000		12,674,000			12,674,000		13,374,000
Real estate – non-owner occupied		0		0			0		163,000
Real estate – multi-family and residential rental		92,000		92,000			46,000		23,000
Total commercial		15,666,000		15,609,000			15,479,000		17,396,000
Retail:
Home equity and other		1,291,000		1,208,000			1,223,000		1,093,000
1-4 family mortgages		3,496,000		2,285,000			2,256,000		2,403,000
Total retail		4,787,000		3,493,000			3,479,000		3,496,000
Total with no related allowance recorded	$	20,453,000	$	19,102,000		$	18,958,000	$	20,892,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	2,802,000	$	2,802,000	$	449,000	$	2,888,000	$	1,617,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		775,000		775,000		89,000		994,000		813,000
Real estate – non-owner occupied		151,000		151,000		6,000		152,000		156,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		3,728,000		3,728,000		544,000		4,034,000		2,586,000
Retail:
Home equity and other		182,000		163,000		142,000		197,000		232,000
1-4 family mortgages		416,000		416,000		79,000		472,000		569,000
Total retail		598,000		579,000		221,000		669,000		801,000
Total with an allowance recorded	$	4,326,000	$	4,307,000	$	765,000	$	4,703,000	$	3,387,000
Total impaired loans:
Commercial	$	19,394,000	$	19,337,000	$	544,000	$	19,513,000	$	19,982,000
Retail		5,385,000		4,072,000		221,000		4,148,000		4,297,000
Total impaired loans	$	24,779,000	$	23,409,000	$	765,000	$	23,661,000	$	24,279,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	6,242,000	$	6,242,000		$	7,416,000	$	8,282,000
Vacant land, land development and residential construction		0		0			326,000		234,000
Real estate – owner occupied		14,782,000		14,593,000			3,645,000		3,053,000
Real estate – non-owner occupied		341,000		341,000			309,000		199,000
Real estate – multi-family and residential rental		0		0			0		3,000
Total commercial		21,365,000		21,176,000			11,696,000		11,771,000
Retail:
Home equity and other		1,072,000		987,000			1,305,000		1,273,000
1-4 family mortgages		4,455,000		2,575,000			2,505,000		2,415,000
Total retail		5,527,000		3,562,000			3,810,000		3,688,000
Total with no related allowance recorded	$	26,892,000	$	24,738,000		$	15,506,000	$	15,459,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	343,000	$	343,000	$	53,000	$	940,000	$	1,128,000
Vacant land, land development and residential construction		0		0		0		0		96,000
Real estate – owner occupied		763,000		734,000		77,000		436,000		538,000
Real estate – non-owner occupied		162,000		162,000		8,000		168,000		84,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		1,268,000		1,239,000		138,000		1,544,000		1,846,000
Retail:
Home equity and other		300,000		283,000		241,000		470,000		455,000
1-4 family mortgages		698,000		698,000		172,000		653,000		569,000
Total retail		998,000		981,000		413,000		1,123,000		1,024,000
Total with an allowance recorded	$	2,266,000	$	2,220,000	$	551,000	$	2,667,000	$	2,870,000
Total impaired loans:
Commercial	$	22,633,000	$	22,415,000	$	138,000	$	13,240,000	$	13,617,000
Retail		6,525,000		4,543,000		413,000		4,933,000		4,712,000
Total impaired loans	$	29,158,000	$	26,958,000	$	551,000	$	18,173,000	$	18,329,000

Financing Receivable Credit Quality Indicators [Table Text Block]

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	706,369,000	$	23,336,000	$	324,000,000	$	450,779,000	$	104,531,000
Grades 5 – 7		364,529,000		14,941,000		212,733,000		534,165,000		74,439,000
Grades 8 – 9		3,496,000		103,000		15,029,000		13,753,000		156,000
Total commercial	$	1,074,394,000	$	38,380,000	$	551,762,000	$	998,697,000	$	179,126,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	828,706,000	$	22,547,000	$	315,134,000	$	396,700,000	$	91,711,000
Grades 5 – 7		306,614,000		32,398,000		185,541,000		520,395,000		54,111,000
Grades 8 – 9		10,103,000		110,000		29,278,000		341,000		273,000
Total commercial	$	1,145,423,000	$	55,055,000	$	529,953,000	$	917,436,000	$	146,095,000

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	Commercial Loans			Retail Loans			Unallocated		Total
Allowance for loan losses:
Balance at June 30, 2021	$	32,092,000		$	3,636,000		$	185,000	$	35,913,000
Provision for loan losses		1,859,000			41,000			0		1,900,000
Charge-offs		(690,000	)		(53,000	)		0		(743,000	)
Recoveries		221,000			132,000			0		353,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Allowance for loan losses:
Balance at December 31, 2020	$	33,779,000		$	4,129,000		$	59,000	$	37,967,000
Provision for loan losses		(271,000	)		(755,000	)		126,000		(900,000	)
Charge-offs		(771,000	)		(94,000	)		0		(865,000	)
Recoveries		745,000			476,000			0		1,221,000
Ending balance	$	33,482,000		$	3,756,000		$	185,000	$	37,423,000
Ending balance: individually evaluated for impairment	$	544,000		$	221,000		$	0	$	765,000
Ending balance: collectively evaluated for impairment	$	32,938,000		$	3,535,000		$	185,000	$	36,658,000
Total loans (*):
Ending balance	$	2,726,706,000		$	471,350,000				$	3,198,056,000
Ending balance: individually evaluated for impairment	$	19,337,000		$	4,072,000				$	23,409,000
Ending balance: collectively evaluated for impairment	$	2,707,369,000		$	467,278,000				$	3,174,647,000

	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2020	$	27,962,000		$	4,224,000		$	60,000		$	32,246,000
Provision for loan losses		3,499,000			(266,000	)		(33,000	)		3,200,000
Charge-offs		(45,000	)		(78,000	)		0			(123,000	)
Recoveries		194,000			55,000			0			249,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Allowance for loan losses:
Balance at December 31, 2019	$	21,070,000		$	2,749,000		$	70,000		$	23,889,000
Provision for loan losses		10,539,000			1,054,000			(43,000	)		11,550,000
Charge-offs		(360,000	)		(139,000	)		0			(499,000	)
Recoveries		361,000			271,000			0			632,000
Ending balance	$	31,610,000		$	3,935,000		$	27,000		$	35,572,000
Ending balance: individually evaluated for impairment	$	480,000		$	430,000		$	0		$	910,000
Ending balance: collectively evaluated for impairment	$	31,130,000		$	3,505,000		$	27,000		$	34,662,000
Total loans (*):
Ending balance	$	2,428,703,000		$	399,508,000					$	2,828,211,000
Ending balance: individually evaluated for impairment	$	22,415,000		$	4,543,000					$	26,958,000
Ending balance: collectively evaluated for impairment	$	2,406,288,000		$	394,965,000					$	2,801,253,000

Financing Receivable, Troubled Debt Restructuring [Table Text Block]

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	186,000	$	185,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		3		279,000		278,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total retail		0		0		0
Total loans		3	$	279,000	$	278,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		10	$	3,017,000	$	3,016,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		692,000		692,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		1		93,000		93,000
Total commercial		12		3,802,000		3,801,000
Retail:
Home equity and other		4		485,000		482,000
1-4 family mortgages		2		46,000		46,000
Total retail		6		531,000		528,000
Total loans		18	$	4,333,000	$	4,329,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	7,000	$	7,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		56,000		56,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		5		634,000		634,000
Retail:
Home equity and other		5		82,000		83,000
1-4 family mortgages		2		68,000		67,000
Total retail		7		150,000		150,000
Total loans		12	$	784,000	$	784,000

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		8	$	6,485,000	$	6,491,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		7		3,508,000		2,906,000
Real estate – non-owner occupied		2		571,000		571,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		17		10,564,000		9,968,000
Retail:
Home equity and other		14		422,000		423,000
1-4 family mortgages		3		88,000		87,000
Total retail		17		510,000		510,000
Total loans		34	$	11,074,000	$	10,478,000

Troubled Debt Restructurings on Financing Receivables with in Previous Twelve Months that Became Over Thirty Days Past Due [Table Text Block]

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		5,000
Total retail		1		5,000
Total		1	$	5,000

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		1		31,000
Total retail		1		31,000
Total		1	$	31,000

Trouble Debt Restructuring Activity [Table Text Block]

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	5,563,000		$	0	$	13,888,000		$	153,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(75,000	)		0		(439,000	)		(2,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		184,000			0		0			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,396,000		$	699,000
Charge-Offs		0			0
Payments		(91,000	)		(51,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	1,305,000		$	648,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	6,414,000		$	0	$	14,797,000		$	480,000		$	0
Charge-Offs		(17,000	)		0		0			0			0
Payments		(3,596,000	)		0		(2,034,000	)		(329,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		2,854,000			0		686,000			0			92,000
Ending Balance	$	5,655,000		$	0	$	13,449,000		$	151,000		$	92,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,146,000		$	806,000
Charge-Offs		0			0
Payments		(323,000	)		(204,000	)
Transfers to ORE		0			0
Net Additions/Deletions		482,000			46,000
Ending Balance	$	1,305,000		$	648,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	10,067,000		$	80,000		$	3,791,000		$	170,000		$	1,000
Charge-Offs		0			0			0			0			0
Payments		(3,537,000	)		(80,000	)		(827,000	)		(4,000	)		(1,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		7,000			0			55,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,715,000		$	715,000
Charge-Offs		0			0
Payments		(220,000	)		(17,000	)
Transfers to ORE		0			0
Net Additions/Deletions		82,000			69,000
Ending Balance	$	1,577,000		$	767,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	8,587,000		$	85,000		$	1,145,000		$	178,000		$	7,000
Charge-Offs		0			0			0			0			0
Payments		(8,512,000	)		(85,000	)		(1,836,000	)		(12,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		6,462,000			0			3,710,000			569,000			0
Ending Balance	$	6,537,000		$	0		$	3,019,000		$	735,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,415,000		$	724,000
Charge-Offs		0			0
Payments		(423,000	)		(46,000	)
Transfers to ORE		0			0
Net Additions/Deletions		585,000			89,000
Ending Balance	$	1,577,000		$	767,000

Allowance Related to Loans Categorized as Troubled Debt Restructurings [Table Text Block]

	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	311,000	$	53,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		89,000		59,000
Real estate – non-owner occupied		6,000		8,000
Real estate – multi-family and residential rental		0		0
Total commercial		406,000		120,000
Retail:
Home equity and other		113,000		202,000
1-4 family mortgages		79,000		145,000
Total retail		192,000		347,000
Total related allowance	$	598,000	$	467,000

Retail Portfolio Segment [Member]

Notes Tables

Financing Receivable Credit Quality Indicators [Table Text Block]

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	59,590,000	$	409,667,000
Nonperforming		142,000		1,951,000
Total retail	$	59,732,000	$	411,618,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Performing	$	61,378,000	$	335,559,000
Nonperforming		242,000		2,329,000
Total retail	$	61,620,000	$	337,888,000

XML

Note 4 - Premises and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 2021		December 31, 2020
Land and improvements	$	15,097,000	$	16,533,000
Buildings		55,579,000		56,114,000
Furniture and equipment		22,231,000		21,522,000
		92,907,000		94,169,000
Less: accumulated depreciation		35,442,000		35,210,000
Premises and equipment, net	$	57,465,000	$	58,959,000

XML

Note 5 - Deposits (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Summary of Deposits and Percentage Change in Deposits [Table Text Block]

	September 30, 2021					December 31, 2020					Percent Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	1,647,380,000		42.6	%	$	1,433,403,000		42.0	%		14.9	%
Interest-bearing checking		535,983,000		13.9			473,053,000		13.9			13.3
Money market		854,763,000		22.1			611,912,000		17.9			39.7
Savings		392,298,000		10.1			338,070,000		9.9			16.0
Time, under $100,000		139,031,000		3.6			165,548,000		4.9			(16.0	)
Time, $100,000 and over		275,623,000		7.1			342,633,000		10.0			(19.6	)
Total local deposits		3,845,078,000		99.4			3,364,619,000		98.6			14.3
Out-of-area time, $100,000 and over		23,913,000		0.6			46,934,000		1.4			(49.0	)
Total deposits	$	3,868,991,000		100.0	%	$	3,411,553,000		100.0	%		13.4	%

XML

Note 6 - Securities Sold Under Agreements to Repurchase (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Repurchase Agreements [Table Text Block]

	Nine Months Ended September 30, 2021			Twelve Months Ended December 31, 2020
Outstanding balance at end of period	$	175,850,000		$	118,365,000
Average interest rate at end of period		0.11	%		0.12	%
Average daily balance during the period	$	151,522,000		$	132,880,000
Average interest rate during the period		0.11	%		0.12	%
Maximum daily balance during the period	$	195,570,000		$	173,186,000

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Maturities of Currently Outstanding FHLB Advances [Table Text Block]

2021	$	20,000,000
2022		94,000,000
2023		80,000,000
2024		80,000,000
2025		50,000,000
Thereafter		70,000,000

XML

Note 8 - Commitments and Off-balance Sheet Risk (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Summary of Contractual Amounts of Financial Instruments With Off Balance Sheet Risk [Table Text Block]

	September 30, 2021		December 31, 2020
Commercial unused lines of credit	$	1,080,801,000	$	1,019,496,000
Unused lines of credit secured by 1 – 4 family residential properties		60,859,000		59,396,000
Credit card unused lines of credit		88,013,000		72,495,000
Other consumer unused lines of credit		61,047,000		30,707,000
Commitments to make loans		253,124,000		227,558,000
Standby letters of credit		29,375,000		20,543,000
	$	1,573,219,000	$	1,430,195,000

XML

Note 9 - Derivatives and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Derivative Instruments [Table Text Block]

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	214,368,000	Other Assets	$	5,031,000
Derivative Liabilities
Interest rate swaps		214,368,000	Other Liabilities		5,250,000

	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	33,731,000	Other Assets	$	1,003,000
Derivative Liabilities
Interest rate swaps		33,731,000	Other Liabilities		1,027,000

XML

Note 10 - Fair Values of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Level in	September 30, 2021				December 31, 2020
	Fair Value Hierarchy	Carrying Values		Fair Values		Carrying Values		Fair Values
Financial assets:
Cash	Level 1	$	17,709	$	17,709	$	16,953	$	16,953
Cash equivalents	Level 2		807,652		807,652		609,053		609,053
Securities available for sale	(1)		559,564		559,564		387,347		387,347
FHLBI stock	(2)		18,002		18,002		18,002		18,002
Loans, net	Level 3		3,276,286		3,386,378		3,155,503		3,294,522
Mortgage loans held for sale	Level 2		47,247		49,107		22,888		24,029
Mortgage servicing rights	Level 2		11,146		14,321		8,189		10,006
Accrued interest receivable	Level 2		9,986		9,986		10,861		10,861
Financial liabilities:
Deposits	Level 2		3,868,991		3,949,449		3,411,553		3,397,768
Repurchase agreements	Level 2		175,850		175,850		118,365		118,365
FHLBI advances	Level 2		394,000		406,002		394,000		410,881
Subordinated debentures	Level 2		48,074		47,980		47,563		47,574
Accrued interest payable	Level 2		1,406		1,406		2,313		2,313

XML

Note 11 - Fair Values (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	364,386,000	$	0	$	364,386,000	$	0
Mortgage-backed securities		39,453,000		0		39,453,000		0
Municipal general obligation bonds		134,610,000		0		133,893,000		717,000
Municipal revenue bonds		20,615,000		0		20,615,000		0
Other investments		500,000		0		500,000		0
Total	$	559,564,000	$	0	$	558,847,000	$	717,000

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	242,141,000	$	0	$	242,141,000	$	0
Mortgage-backed securities		24,890,000		0		24,890,000		0
Municipal general obligation bonds		107,824,000		0		107,058,000		766,000
Municipal revenue bonds		11,992,000		0		11,992,000		0
Other investments		500,000		0		500,000		0
Total	$	387,347,000	$	0	$	386,581,000	$	766,000

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	4,286,000	$	0	$	0	$	4,286,000
Foreclosed assets		111,000		0		0		111,000
Total	$	4,397,000	$	0	$	0	$	4,397,000

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,880,000	$	0	$	0	$	2,880,000
Foreclosed assets		701,000		0		0		701,000
Total	$	3,581,000	$	0	$	0	$	3,581,000

XML

Note 12 - Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total capital (to risk weighted assets)
Consolidated	$	484,594		12.5	%	$	310,930		8.0	%	$	NA		NA
Bank		482,625		12.4			310,796		8.0			388,495		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		448,010		11.5			233,197		6.0			NA		NA
Bank		445,202		11.5			233,097		6.0			310,796		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		402,010		10.3			174,898		4.5			NA		NA
Bank		445,202		11.5			174,823		4.5			252,522		6.5
Tier 1 capital (to average assets)
Consolidated		448,010		9.3			192,098		4.0			NA		NA
Bank		445,202		9.3			192,031		4.0			240,039		5.0

December 31, 2020
Total capital (to risk weighted assets)
Consolidated	$	468,113	13.8	%	$	271,325	8.0	%	$	NA	NA
Bank		457,203	13.5			271,196	8.0			338,995	10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		430,146	12.7			203,494	6.0			NA	NA
Bank		419,236	12.4			203,397	6.0			271,196	8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		384,658	11.3			152,621	4.5			NA	NA
Bank		419,236	12.4			152,548	4.5			220,347	6.5
Tier 1 capital (to average assets)
Consolidated		430,146	9.8			176,053	4.0			NA	NA
Bank		419,236	9.5			175,999	4.0			219,999	5.0

XML

Note 1 - Significant Accounting Policies (Details Textual)		1 Months Ended	3 Months Ended		9 Months Ended
	May 14, 2021 USD ($)	Apr. 30, 2020	Sep. 30, 2021 USD ($) shares	Sep. 30, 2020 USD ($) shares	Sep. 30, 2021 USD ($) shares	Sep. 30, 2020 USD ($) shares	May 31, 2021 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Aug. 08, 2020 USD ($)	Jul. 15, 2020 USD ($)
Number of Unconsolidated Business Trusts Formed to Issue Trust Preferred Securities			5		5
Interest Income on Commercial and Mortgage Loans Discontinued Period (Day)					90 days
Maximum Delinquency Period for Consumer and Credit Card Loans to be Charged Off (Day)					120 days
Mortgages Held-for-sale, Fair Value Disclosure			$ 49,100,000		$ 49,100,000				$ 24,000,000.0
Servicing Asset, Total			1,260,000,000		1,260,000,000				1,040,000,000.00
Property, Plant and Equipment, Net, Ending Balance			$ 57,465,000		$ 57,465,000				58,959,000
Revision of Prior Period, Adjustment [Member]
Property, Plant and Equipment, Net, Ending Balance								$ 2,700,000	2,800,000
Other Liabilities, Total								$ 2,700,000	$ 2,800,000
Hastings, Michigan Branch Office [Member] | Disposal Group, Held-for-sale, Not Discontinued Operations [Member]
Disposal Group, Including Discontinued Operation, Accounts, Notes and Loans Receivable, Net	$ 9,700,000
Proceeds from Sale of Property Held-for-sale	1,500,000
Disposal Group, Including Discontinued Operation, Liabilities, Total	$ 14,600,000
Disposal Group, Including Discontinued Operation, Deposit Accounts, Premium of Book Balance	5.00%
Disposal Group, Including Discontinued Operation, Deposit Premium	$ 700,000
Hastings, Michigan Branch Office [Member] | Disposal Group, Held-for-sale, Not Discontinued Operations [Member] | Branch Facility [Member]
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal	$ 300,000
Core Deposits [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)					10 years
Restricted Stock [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights (in shares) | shares			260,000	255,000	260,000	255,000
Share-based Payment Arrangement, Option [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights (in shares) | shares			3,000	2,000	3,000	2,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares			7,000	9,000	7,000	9,000
Commercial Portfolio Segment [Member]
Financing Receivable, Payment Deferrals, Interest-only Amendments, Period (Day)		90 days
Financing Receivable, Payment Deferrals, Principal and Interest, Period (Day)		90 days
Financing Receivable, Payment Deferrals, Interest Rate		0.00%
Financing Receivable, Number of Principal and Interest Payment Deferrals			0		0						750
Financing Receivable, Principal and Interest Deferred Payments											$ 719,000,000
Retail Portfolio Segment [Member]
Financing Receivable, Payment Deferrals, Principal and Interest, Period (Day)		90 days
Financing Receivable, Number of Principal and Interest Payment Deferrals			6	260	6	260
Financing Receivable, Principal and Interest Deferred Payments			$ 500,000	$ 23,800,000	$ 500,000	$ 23,800,000
SBA, CARES Act, Paycheck Protection Program [Member]
Number of Loans Originated Under the Paycheck Protection Program										2,200
Financing Receivable, before Allowance for Credit Loss, Total										$ 553,000,000
Financing Receivable, Forgiveness Transactions, Number of Loans			2,100		2,100
Financing Receivable, Forgiveness Transactions			$ 550,000,000		$ 550,000,000
Amortization of Deferred Loan Origination Fees, Net					$ 3,700,000
SBA, CARES Act, Paycheck Protection Program, Round Two [Member]
Number of Loans Originated Under the Paycheck Protection Program							1,200
Financing Receivable, before Allowance for Credit Loss, Total							$ 209,000,000
Financing Receivable, Forgiveness Transactions, Number of Loans			600		600
Financing Receivable, Forgiveness Transactions			$ 95,900,000		$ 95,900,000
Amortization of Deferred Loan Origination Fees, Net					$ 4,800,000

XML

Note 2 - Securities (Details Textual)	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	291
Debt Securities, Available-for-sale, Unrealized Loss Position, Total	$ 390,206,000	$ 119,073,000
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss, Total	5,956,000	899,000
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held, Ending Balance	0
Debt Securities, Available-for-sale, Amortized Cost, Total	559,938,000	380,403,000
Debt Securities, Available-for-sale, Total	559,564,000	387,347,000
State of Michigan and All Its Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	148,000,000	109,000,000
Debt Securities, Available-for-sale, Total	153,000,000	116,000,000
All Other States and Their Political Subdivisions [Member]
Debt Securities, Available-for-sale, Amortized Cost, Total	2,700,000	4,100,000
Debt Securities, Available-for-sale, Total	2,700,000	4,200,000
US Government Agency Debt Obligations and Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Restricted	$ 176,000,000	$ 118,000,000

XML

Note 2 - Securities - Available-for-sale Securities (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Securities available for sale, amortized cost	$ 559,938,000	$ 380,403,000
Securities available for sale, gross unrealized gains	5,582,000	7,843,000
Securities available for sale, gross unrealized losses	(5,956,000)	(899,000)
Securities available for sale, fair value	559,564,000	387,347,000
US Government Agencies Debt Securities [Member]
Securities available for sale, amortized cost	368,990,000	242,522,000
Securities available for sale, gross unrealized gains	350,000	516,000
Securities available for sale, gross unrealized losses	(4,954,000)	(897,000)
Securities available for sale, fair value	364,386,000	242,141,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, amortized cost	39,299,000	23,869,000
Securities available for sale, gross unrealized gains	698,000	1,021,000
Securities available for sale, gross unrealized losses	(544,000)	0
Securities available for sale, fair value	39,453,000	24,890,000
Municipal General Obligation Bonds [Member]
Securities available for sale, amortized cost	130,681,000	101,991,000
Securities available for sale, gross unrealized gains	4,207,000	5,833,000
Securities available for sale, gross unrealized losses	(278,000)	0
Securities available for sale, fair value	134,610,000	107,824,000
Municipal Revenue Bonds [Member]
Securities available for sale, amortized cost	20,468,000	11,521,000
Securities available for sale, gross unrealized gains	327,000	473,000
Securities available for sale, gross unrealized losses	(180,000)	(2,000)
Securities available for sale, fair value	20,615,000	11,992,000
Other Debt and Equity Securities [Member]
Securities available for sale, amortized cost	500,000	500,000
Securities available for sale, gross unrealized gains	0	0
Securities available for sale, gross unrealized losses	0	0
Securities available for sale, fair value	$ 500,000	$ 500,000

XML

Note 2 - Securities - Securities in a Continuous Loss Position (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Securities available for sale, continuous unrealized loss position, less than 12 months	$ 341,046,000	$ 119,073,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	4,954,000	899,000
Securities available for sale, continuous unrealized loss position, 12 months or more	49,160,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	1,002,000	0
Securities available for sale, continuous unrealized loss position	390,206,000	119,073,000
Securities available for sale, continuous unrealized loss position, unrealized loss	5,956,000	899,000
US Government Agencies Debt Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	274,190,000	118,650,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	3,974,000	897,000
Securities available for sale, continuous unrealized loss position, 12 months or more	48,317,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	980,000	0
Securities available for sale, continuous unrealized loss position	322,507,000	118,650,000
Securities available for sale, continuous unrealized loss position, unrealized loss	4,954,000	897,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	23,578,000	0
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	544,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more	23,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	0	0
Securities available for sale, continuous unrealized loss position	23,601,000	0
Securities available for sale, continuous unrealized loss position, unrealized loss	544,000	0
Municipal General Obligation Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	32,180,000	0
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	278,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more	0	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	0	0
Securities available for sale, continuous unrealized loss position	32,180,000	0
Securities available for sale, continuous unrealized loss position, unrealized loss	278,000	0
Municipal Revenue Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	11,098,000	423,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	158,000	2,000
Securities available for sale, continuous unrealized loss position, 12 months or more	820,000	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	22,000	0
Securities available for sale, continuous unrealized loss position	11,918,000	423,000
Securities available for sale, continuous unrealized loss position, unrealized loss	$ 180,000	$ 2,000

XML

Note 2 - Securities - Debt Securities by Maturity (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Due in 2021, Weighted Average Yield	2.25%
Due in 2021, Amortized Cost	$ 545,000
Due in 2021, Fair Value	$ 547,000
Due in 2022 through 2026, Weighted Average Yield	1.01%
Due in 2022 through 2026, Amortized Cost	$ 187,220,000
Due in 2022 through 2026, Fair Value	$ 188,005,000
Due in 2027 through 2031, Weighted Average Yield	1.56%
Due in 2027 through 2031, Amortized Cost	$ 266,478,000
Due in 2027 through 2031, Fair Value	$ 265,719,000
Due in 2032 and beyond, Weighted Average Yield	1.98%
Due in 2032 and beyond, Amortized Cost	$ 65,896,000
Due in 2032 and beyond, Fair Value	$ 65,340,000
Total available for sale securities, Weighted Average Yield	1.44%
Total available for sale securities, Amortized Cost	$ 559,938,000	$ 380,403,000
Debt Securities, Available-for-sale, Total	$ 559,564,000	387,347,000
Collateralized Mortgage Backed Securities [Member]
No single maturity, weighted average yield	1.76%
No single maturity, amortized cost	$ 39,299,000
No single maturity, fair value	39,453,000
Total available for sale securities, Amortized Cost	39,299,000	23,869,000
Debt Securities, Available-for-sale, Total	$ 39,453,000	24,890,000
Other Debt and Equity Securities [Member]
No single maturity, weighted average yield	3.75%
No single maturity, amortized cost	$ 500,000
No single maturity, fair value	500,000
Total available for sale securities, Amortized Cost	500,000	500,000
Debt Securities, Available-for-sale, Total	$ 500,000	$ 500,000

XML

Note 3 - Loans and Allowance for Loan Losses (Details Textual) - USD ($)		3 Months Ended			9 Months Ended
		Sep. 30, 2021		Sep. 30, 2020	Sep. 30, 2021		Sep. 30, 2020	Dec. 31, 2020
Loans and Leases Receivable, Net of Deferred Income, Total		$ 3,313,709,000			$ 3,313,709,000			$ 3,193,470,000
Loans and Leases Receivable Period Increase (Decrease)					$ 120,000,000
Loans and Leases Receivable, Percentage Period Increase (Decrease)					3.80%
Impaired Financing Receivable, Interest Income, Accrual Method, Total		400,000		$ 200,000	$ 1,200,000		$ 800,000
Loans and Leases Receivable, Nonaccrual Loans, Interest Income Recognized		0		0	0		0
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans		100,000		$ 100,000	$ 100,000		$ 200,000
Minimum Number of Days Past Due at Period End For Loans Modified as Troubled Debt Restructurings (Day)					30 days
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		2,842,359,000			$ 2,842,359,000			2,793,962,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	[1]	1,074,394,000			1,074,394,000			1,145,423,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Grades 1-4 [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		706,369,000	[2]		706,369,000	[2]		828,706,000	[3]
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | SBA, CARES Act, Paycheck Protection Program [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		116,000,000			116,000,000			365,000,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | SBA, CARES Act, Paycheck Protection Program [Member] | Grades 1-4 [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		$ 116,000,000			$ 116,000,000			$ 365,000,000

[1] Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

[2] Included in Commercial and Industrial Loans Grades 1 – 4 are $116 million of loans originated under the Paycheck Protection Program.

[3] Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program.

XML

Note 3 - Loans and Allowance for Loan Losses - Components of Loan Portfolio (Details) - USD ($)		9 Months Ended
		Sep. 30, 2021	Dec. 31, 2020
Loans		$ 3,313,709,000	$ 3,193,470,000
Percent of portfolio		100.00%	100.00%
Period increase (decrease)		3.80%
Commercial Portfolio Segment [Member]
Loans		$ 2,842,359,000	$ 2,793,962,000
Percent of portfolio		85.80%	87.50%
Period increase (decrease)		1.70%
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	[1]	$ 1,074,394,000	$ 1,145,423,000
Percent of portfolio	[1]	32.40%	35.90%
Period increase (decrease)	[1]	(6.20%)
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans		$ 38,380,000	$ 55,055,000
Percent of portfolio		1.20%	1.70%
Period increase (decrease)		(30.30%)
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans		$ 551,762,000	$ 529,953,000
Percent of portfolio		16.70%	16.60%
Period increase (decrease)		4.10%
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans		$ 998,697,000	$ 917,436,000
Percent of portfolio		30.10%	28.70%
Period increase (decrease)		8.90%
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans		$ 179,126,000	$ 146,095,000
Percent of portfolio		5.40%	4.60%
Period increase (decrease)		22.60%
Retail Portfolio Segment [Member]
Loans		$ 471,350,000	$ 399,508,000
Percent of portfolio		14.20%	12.50%
Period increase (decrease)		18.00%
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans		$ 59,732,000	$ 61,620,000
Percent of portfolio		1.80%	1.90%
Period increase (decrease)		(3.10%)
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans		$ 411,618,000	$ 337,888,000
Percent of portfolio		12.40%	10.60%
Period increase (decrease)		21.80%

[1] Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

XML

Note 3 - Loans and Allowance for Loan Losses - Nonperforming Loans (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Loans past due 90 days or more still accruing interest	$ 0	$ 0
Commercial Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonperforming Financial Instruments [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	2,766,000	3,384,000
Total nonperforming loans	2,766,000	3,384,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Total nonperforming loans	673,000	813,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Total nonperforming loans	673,000	172,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Total nonperforming loans	0	0
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Total nonperforming loans	0	619,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Total nonperforming loans	0	22,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Total nonperforming loans	0	0
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member]
Total nonperforming loans	2,093,000	2,571,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Total nonperforming loans	142,000	242,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Total nonperforming loans	$ 1,951,000	$ 2,329,000

XML

Note 3 - Loans and Allowance for Loan Losses - Age Analysis of Past Due Loans (Details) - USD ($)		Sep. 30, 2021	Dec. 31, 2020
Loans and Leases Receivable, Net of Deferred Income, Total		$ 3,313,709,000	$ 3,193,470,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		2,842,359,000	2,793,962,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	[1]	1,074,394,000	1,145,423,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		38,380,000	55,055,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		551,762,000	529,953,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		998,697,000	917,436,000
Loans past due 90 days or more still accruing interest		0	0
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		179,126,000	146,095,000
Loans past due 90 days or more still accruing interest		0	0
Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		471,350,000	399,508,000
Loans past due 90 days or more still accruing interest		0	0
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		59,732,000	61,620,000
Loans past due 90 days or more still accruing interest		0	0
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		411,618,000	337,888,000
Loans past due 90 days or more still accruing interest		0	0
Financial Asset, 30 to 59 Days Past Due [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		418,000	1,520,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	261,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	261,000
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		418,000	1,259,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		103,000	112,000
Financial Asset, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		315,000	1,147,000
Financial Asset, 60 to 89 Days Past Due [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		374,000	681,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	369,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	172,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	197,000
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		374,000	312,000
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		11,000	65,000
Financial Asset, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		363,000	247,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		303,000	840,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		44,000	444,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		44,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	421,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	23,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		259,000	396,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		35,000	54,000
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		224,000	342,000
Financial Asset, Past Due [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		1,095,000	3,041,000
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		44,000	1,074,000
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		44,000	433,000
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	618,000
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	23,000
Financial Asset, Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		0	0
Financial Asset, Past Due [Member] | Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		1,051,000	1,967,000
Financial Asset, Past Due [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		149,000	231,000
Financial Asset, Past Due [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		902,000	1,736,000
Financial Asset, Not Past Due [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		3,312,614,000	3,190,429,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		2,842,315,000	2,792,888,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		1,074,350,000	1,144,990,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		38,380,000	55,055,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		551,762,000	529,335,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		998,697,000	917,413,000
Financial Asset, Not Past Due [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		179,126,000	146,095,000
Financial Asset, Not Past Due [Member] | Retail Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		470,299,000	397,541,000
Financial Asset, Not Past Due [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		59,583,000	61,389,000
Financial Asset, Not Past Due [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans and Leases Receivable, Net of Deferred Income, Total		$ 410,716,000	$ 336,152,000

[1] Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

XML

Note 3 - Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
With no related allowance recorded, unpaid principal balance	$ 20,453,000		$ 20,453,000		$ 26,892,000
With no related allowance recorded, principal balance	19,102,000		19,102,000		24,738,000
With no related allowance recorded, average recorded principal balance	18,958,000	$ 15,506,000	20,892,000	$ 15,459,000
With related allowance recorded, unpaid principal balance	4,326,000		4,326,000		2,266,000
With related allowance recorded, principal balance	4,307,000		4,307,000		2,220,000
Related allowance	765,000		765,000		551,000
With related allowance recorded, average recorded principal balance	4,703,000	2,667,000	3,387,000	2,870,000
Total unpaid principal balance	24,779,000		24,779,000		29,158,000
Total principal balance	23,409,000		23,409,000		26,958,000
Total average recorded principal balance	23,661,000	18,173,000	24,279,000	18,329,000
Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	15,666,000		15,666,000		21,365,000
With no related allowance recorded, principal balance	15,609,000		15,609,000		21,176,000
With no related allowance recorded, average recorded principal balance	15,479,000	11,696,000	17,396,000	11,771,000
With related allowance recorded, unpaid principal balance	3,728,000		3,728,000		1,268,000
With related allowance recorded, principal balance	3,728,000		3,728,000		1,239,000
Related allowance	544,000		544,000		138,000
With related allowance recorded, average recorded principal balance	4,034,000	1,544,000	2,586,000	1,846,000
Total unpaid principal balance	19,394,000		19,394,000		22,633,000
Total principal balance	19,337,000		19,337,000		22,415,000
Total average recorded principal balance	19,513,000	13,240,000	19,982,000	13,617,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	2,900,000		2,900,000		6,242,000
With no related allowance recorded, principal balance	2,843,000		2,843,000		6,242,000
With no related allowance recorded, average recorded principal balance	2,759,000	7,416,000	3,836,000	8,282,000
With related allowance recorded, unpaid principal balance	2,802,000		2,802,000		343,000
With related allowance recorded, principal balance	2,802,000		2,802,000		343,000
Related allowance	449,000		449,000		53,000
With related allowance recorded, average recorded principal balance	2,888,000	940,000	1,617,000	1,128,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0		0
With no related allowance recorded, principal balance	0		0		0
With no related allowance recorded, average recorded principal balance	0	326,000	0	234,000
With related allowance recorded, unpaid principal balance	0		0		0
With related allowance recorded, principal balance	0		0		0
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	0	96,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	12,674,000		12,674,000		14,782,000
With no related allowance recorded, principal balance	12,674,000		12,674,000		14,593,000
With no related allowance recorded, average recorded principal balance	12,674,000	3,645,000	13,374,000	3,053,000
With related allowance recorded, unpaid principal balance	775,000		775,000		763,000
With related allowance recorded, principal balance	775,000		775,000		734,000
Related allowance	89,000		89,000		77,000
With related allowance recorded, average recorded principal balance	994,000	436,000	813,000	538,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0		341,000
With no related allowance recorded, principal balance	0		0		341,000
With no related allowance recorded, average recorded principal balance	0	309,000	163,000	199,000
With related allowance recorded, unpaid principal balance	151,000		151,000		162,000
With related allowance recorded, principal balance	151,000		151,000		162,000
Related allowance	6,000		6,000		8,000
With related allowance recorded, average recorded principal balance	152,000	168,000	156,000	84,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	92,000		92,000		0
With no related allowance recorded, principal balance	92,000		92,000		0
With no related allowance recorded, average recorded principal balance	46,000	0	23,000	3,000
With related allowance recorded, unpaid principal balance	0		0		0
With related allowance recorded, principal balance	0		0		0
Related allowance	0		0		0
With related allowance recorded, average recorded principal balance	0	0	0	0
Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	4,787,000		4,787,000		5,527,000
With no related allowance recorded, principal balance	3,493,000		3,493,000		3,562,000
With no related allowance recorded, average recorded principal balance	3,479,000	3,810,000	3,496,000	3,688,000
With related allowance recorded, unpaid principal balance	598,000		598,000		998,000
With related allowance recorded, principal balance	579,000		579,000		981,000
Related allowance	221,000		221,000		413,000
With related allowance recorded, average recorded principal balance	669,000	1,123,000	801,000	1,024,000
Total unpaid principal balance	5,385,000		5,385,000		6,525,000
Total principal balance	4,072,000		4,072,000		4,543,000
Total average recorded principal balance	4,148,000	4,933,000	4,297,000	4,712,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	1,291,000		1,291,000		1,072,000
With no related allowance recorded, principal balance	1,208,000		1,208,000		987,000
With no related allowance recorded, average recorded principal balance	1,223,000	1,305,000	1,093,000	1,273,000
With related allowance recorded, unpaid principal balance	182,000		182,000		300,000
With related allowance recorded, principal balance	163,000		163,000		283,000
Related allowance	142,000		142,000		241,000
With related allowance recorded, average recorded principal balance	197,000	470,000	232,000	455,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	3,496,000		3,496,000		4,455,000
With no related allowance recorded, principal balance	2,285,000		2,285,000		2,575,000
With no related allowance recorded, average recorded principal balance	2,256,000	2,505,000	2,403,000	2,415,000
With related allowance recorded, unpaid principal balance	416,000		416,000		698,000
With related allowance recorded, principal balance	416,000		416,000		698,000
Related allowance	79,000		79,000		$ 172,000
With related allowance recorded, average recorded principal balance	$ 472,000	$ 653,000	$ 569,000	$ 569,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans by Credit Quality Indicators (Details) - USD ($)		Sep. 30, 2021		Dec. 31, 2020
Loans		$ 3,313,709,000		$ 3,193,470,000
Commercial Portfolio Segment [Member]
Loans		2,842,359,000		2,793,962,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	[1]	1,074,394,000		1,145,423,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans		38,380,000		55,055,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans		551,762,000		529,953,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans		998,697,000		917,436,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans		179,126,000		146,095,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans		706,369,000	[2]	828,706,000	[3]
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans		23,336,000	[2]	22,547,000	[3]
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans		324,000,000	[2]	315,134,000	[3]
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans		450,779,000	[2]	396,700,000	[3]
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans		104,531,000	[2]	91,711,000	[3]
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans		364,529,000		306,614,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans		14,941,000		32,398,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans		212,733,000		185,541,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans		534,165,000		520,395,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans		74,439,000		54,111,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans		3,496,000		10,103,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans		103,000		110,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans		15,029,000		29,278,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans		13,753,000		341,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans		$ 156,000		$ 273,000

[1] Includes $116 million and $365 million in loans originated under the Paycheck Protection Program for September 30, 2021 and December 31, 2020, respectively.

[2] Included in Commercial and Industrial Loans Grades 1 – 4 are $116 million of loans originated under the Paycheck Protection Program.

[3] Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program.

XML

Note 3 - Loans and Allowance for Loan Losses - Retail Credit Exposure (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Loans	$ 3,313,709,000	$ 3,193,470,000
Retail Portfolio Segment [Member]
Loans	471,350,000	399,508,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	59,732,000	61,620,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member] | Performing Financial Instruments [Member]
Loans	59,590,000	61,378,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member] | Nonperforming Financial Instruments [Member]
Loans	142,000	242,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	411,618,000	337,888,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member] | Performing Financial Instruments [Member]
Loans	409,667,000	335,559,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member] | Nonperforming Financial Instruments [Member]
Loans	$ 1,951,000	$ 2,329,000

XML

Note 3 - Loans and Allowance for Loan Losses - Activity in Allowance for Loan Losses and the Recorded Investments in Loans (Details) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2021		Sep. 30, 2020	Sep. 30, 2021		Sep. 30, 2020	Dec. 31, 2020	[1]
Beginning balance	$ 35,913,000		$ 32,246,000	$ 37,967,000		$ 23,889,000
Provision for loan losses	1,900,000		3,200,000	(900,000)		11,550,000
Charge-offs	(743,000)		(123,000)	(865,000)		(499,000)
Recoveries	353,000		249,000	1,221,000		632,000
Ending balance	37,423,000		35,572,000	37,423,000		35,572,000
Ending balance: individually evaluated for impairment	765,000		910,000	765,000		910,000
Ending balance: collectively evaluated for impairment	36,658,000		34,662,000	36,658,000		34,662,000
Ending balance	3,198,056,000			3,198,056,000			$ 2,828,211,000
Ending balance: individually evaluated for impairment	23,409,000			23,409,000			26,958,000
Ending balance: collectively evaluated for impairment	3,174,647,000			3,174,647,000			2,801,253,000
Commercial Portfolio Segment [Member]
Beginning balance	32,092,000		27,962,000	33,779,000		21,070,000
Provision for loan losses	1,859,000		3,499,000	(271,000)		10,539,000
Charge-offs	(690,000)		(45,000)	(771,000)		(360,000)
Recoveries	221,000		194,000	745,000		361,000
Ending balance	33,482,000		31,610,000	33,482,000		31,610,000
Ending balance: individually evaluated for impairment	544,000		480,000	544,000		480,000
Ending balance: collectively evaluated for impairment	32,938,000		31,130,000	32,938,000		31,130,000
Ending balance	2,726,706,000	[2]		2,726,706,000	[2]		2,428,703,000
Ending balance: individually evaluated for impairment	19,337,000	[2]		19,337,000	[2]		22,415,000
Ending balance: collectively evaluated for impairment	2,707,369,000	[2]		2,707,369,000	[2]		2,406,288,000
Retail Portfolio Segment [Member]
Beginning balance	3,636,000		4,224,000	4,129,000		2,749,000
Provision for loan losses	41,000		(266,000)	(755,000)		1,054,000
Charge-offs	(53,000)		(78,000)	(94,000)		(139,000)
Recoveries	132,000		55,000	476,000		271,000
Ending balance	3,756,000		3,935,000	3,756,000		3,935,000
Ending balance: individually evaluated for impairment	221,000		430,000	221,000		430,000
Ending balance: collectively evaluated for impairment	3,535,000		3,505,000	3,535,000		3,505,000
Ending balance	471,350,000			471,350,000			399,508,000
Ending balance: individually evaluated for impairment	4,072,000			4,072,000			4,543,000
Ending balance: collectively evaluated for impairment	467,278,000			467,278,000			$ 394,965,000
Unallocated Financing Receivables [Member]
Beginning balance	185,000		60,000	59,000		70,000
Provision for loan losses	0		(33,000)	126,000		(43,000)
Charge-offs	0		0	0		0
Recoveries	0		0	0		0
Ending balance	185,000		27,000	185,000		27,000
Ending balance: individually evaluated for impairment	0		0	0		0
Ending balance: collectively evaluated for impairment	$ 185,000		$ 27,000	$ 185,000		$ 27,000

[1] Excludes $365 million in loans originated under the Paycheck Protection Program.

[2] Excludes $116 million in loans originated under the Paycheck Protection Program.

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified as Troubled Debt Restructurings (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)
Number of Contracts	3	12	18	34
Pre- Modification Recorded Principal Balance	$ 279,000	$ 784,000	$ 4,333,000	$ 11,074,000
Post- Modification Recorded Principal Balance	$ 278,000	$ 784,000	$ 4,329,000	$ 10,478,000
Commercial Portfolio Segment [Member]
Number of Contracts	3	5	12	17
Pre- Modification Recorded Principal Balance	$ 279,000	$ 634,000	$ 3,802,000	$ 10,564,000
Post- Modification Recorded Principal Balance	$ 278,000	$ 634,000	$ 3,801,000	$ 9,968,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	2	2	10	8
Pre- Modification Recorded Principal Balance	$ 186,000	$ 7,000	$ 3,017,000	$ 6,485,000
Post- Modification Recorded Principal Balance	$ 185,000	$ 7,000	$ 3,016,000	$ 6,491,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	1	1	7
Pre- Modification Recorded Principal Balance	$ 0	$ 56,000	$ 692,000	$ 3,508,000
Post- Modification Recorded Principal Balance	$ 0	$ 56,000	$ 692,000	$ 2,906,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	2	0	2
Pre- Modification Recorded Principal Balance	$ 0	$ 571,000	$ 0	$ 571,000
Post- Modification Recorded Principal Balance	$ 0	$ 571,000	$ 0	$ 571,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	1	0	1	0
Pre- Modification Recorded Principal Balance	$ 93,000	$ 0	$ 93,000	$ 0
Post- Modification Recorded Principal Balance	$ 93,000	$ 0	$ 93,000	$ 0
Retail Portfolio Segment [Member]
Number of Contracts	0	7	6	17
Pre- Modification Recorded Principal Balance	$ 0	$ 150,000	$ 531,000	$ 510,000
Post- Modification Recorded Principal Balance	$ 0	$ 150,000	$ 528,000	$ 510,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	5	4	14
Pre- Modification Recorded Principal Balance	$ 0	$ 82,000	$ 485,000	$ 422,000
Post- Modification Recorded Principal Balance	$ 0	$ 83,000	$ 482,000	$ 423,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	2	2	3
Pre- Modification Recorded Principal Balance	$ 0	$ 68,000	$ 46,000	$ 88,000
Post- Modification Recorded Principal Balance	$ 0	$ 67,000	$ 46,000	$ 87,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified As Troubled Debt Restructurings Within the Previous Twelve Months That Became Over 30 Days Past Due (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)
Number of Contracts	1	0	1	1
Recorded Principal Balance	$ 5,000	$ 0	$ 5,000	$ 31,000
Commercial Portfolio Segment [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Retail Portfolio Segment [Member]
Number of Contracts	1	0	1	1
Recorded Principal Balance	$ 5,000	$ 0	$ 5,000	$ 31,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0	0	0
Recorded Principal Balance	$ 0	$ 0	$ 0	$ 0
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	1	0	1	1
Recorded Principal Balance	$ 5,000	$ 0	$ 5,000	$ 31,000

XML

Note 3 - Loans and Allowance for Loan Losses - Activity for Troubled Debt Restructurings (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Beginning Balance	$ 5,563,000	$ 10,067,000	$ 6,414,000	$ 8,587,000
Charge-Offs	(17,000)	0	(17,000)	0
Payments	(75,000)	(3,537,000)	(3,596,000)	(8,512,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	184,000	7,000	2,854,000	6,462,000
Ending Balance	5,655,000	6,537,000	5,655,000	6,537,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	0	80,000	0	85,000
Charge-Offs	0	0	0	0
Payments	0	(80,000)	0	(85,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	0	0	0
Ending Balance	0	0	0	0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	13,888,000	3,791,000	14,797,000	1,145,000
Charge-Offs	0	0	0	0
Payments	(439,000)	(827,000)	(2,034,000)	(1,836,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	55,000	686,000	3,710,000
Ending Balance	13,449,000	3,019,000	13,449,000	3,019,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	153,000	170,000	480,000	178,000
Charge-Offs	0	0	0	0
Payments	(2,000)	(4,000)	(329,000)	(12,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	569,000	0	569,000
Ending Balance	151,000	735,000	151,000	735,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	0	1,000	0	7,000
Charge-Offs	0	0	0	0
Payments	0	(1,000)	0	(7,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	92,000	0	92,000	0
Ending Balance	92,000	0	92,000	0
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Beginning Balance	1,396,000	1,715,000	1,146,000	1,415,000
Charge-Offs	0	0	0	0
Payments	(91,000)	(220,000)	(323,000)	(423,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	82,000	482,000	585,000
Ending Balance	1,305,000	1,577,000	1,305,000	1,577,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Beginning Balance	699,000	715,000	806,000	724,000
Charge-Offs	0	0	0	0
Payments	(51,000)	(17,000)	(204,000)	(46,000)
Transfers to ORE	0	0	0	0
Net Additions/Deletions	0	69,000	46,000	89,000
Ending Balance	$ 648,000	$ 767,000	$ 648,000	$ 767,000

XML

Note 3 - Loans and Allowance for Loan Losses - Allowance Related to Troubled Debt Restructurings (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Related allowance	$ 598,000	$ 467,000
Commercial Portfolio Segment [Member]
Related allowance	406,000	120,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Related allowance	311,000	53,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Related allowance	0	0
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Related allowance	89,000	59,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Related allowance	6,000	8,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Related allowance	0	0
Retail Portfolio Segment [Member]
Related allowance	192,000	347,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Related allowance	113,000	202,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Related allowance	$ 79,000	$ 145,000

XML

Note 4 - Premises and Equipment, Net (Details Textual) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Depreciation, Total	$ 1.5	$ 1.3	$ 4.3	$ 3.8

XML

Note 4 - Premises and Equipment, Net - Summary of Premises and Equipment (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Property, plant and equipment, gross	$ 92,907,000	$ 94,169,000
Less: accumulated depreciation	35,442,000	35,210,000
Premises and equipment, net	57,465,000	58,959,000
Land and Land Improvements [Member]
Property, plant and equipment, gross	15,097,000	16,533,000
Building [Member]
Property, plant and equipment, gross	55,579,000	56,114,000
Furniture and Fixtures [Member]
Property, plant and equipment, gross	$ 22,231,000	$ 21,522,000

XML

Note 5 - Deposits (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Deposits, Total	$ 3,868,991,000	$ 3,411,553,000
Increase (Decrease) in Deposits, Total	$ 457,000,000
Aggregate Increase (Decrease) in Percentage of Deposits	13.40%
Time Deposits, at or Above FDIC Insurance Limit	$ 202,000,000	$ 272,000,000

XML

Note 5 - Deposits - Summary of Deposits (Details) - USD ($)	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Noninterest-bearing	$ 1,647,380,000	$ 1,433,403,000
Noninterest-bearing checking, percentage	42.60%	42.00%
Noninterest-bearing checking, percent increase (decrease)	14.90%
Interest-bearing checking	$ 535,983,000	$ 473,053,000
Interest-bearing checking, percentage	13.90%	13.90%
Interest-bearing checking, percent increase (decrease)	13.30%
Money market	$ 854,763,000	$ 611,912,000
Money market, percentage	22.10%	17.90%
Money market, percent increase (decrease)	39.70%
Savings	$ 392,298,000	$ 338,070,000
Savings, percentage	10.10%	9.90%
Savings, percent increase (decrease)	16.00%
Local Time, under $100,000	$ 139,031,000	$ 165,548,000
Local Time, under $100,000, percentage	3.60%	4.90%
Local Time, under $100,000, percent increase (decrease)	(16.00%)
Local Time, $100,000 and over	$ 275,623,000	$ 342,633,000
Local Time, $100,000 and over, percentage	7.10%	10.00%
Local Time, $100,000 and over, percent increase (decrease)	(19.60%)
Total local deposits	$ 3,845,078,000	$ 3,364,619,000
Total local deposits, percentage	99.40%	98.60%
Total local deposits, percent increase (decrease)	14.30%
Out-of-area time, $100,000 and over	$ 23,913,000	$ 46,934,000
Out-of-area time, $100,000 and over, percentage	0.60%	1.40%
Out-of-area time, $100,000 and over, percent increase (decrease)	(49.00%)
Total deposits	$ 3,868,991,000	$ 3,411,553,000
Total deposits, percentage	100.00%	100.00%
Total deposits, percent increase (decrease)	13.40%

XML

Note 6 - Securities Sold Under Agreements to Repurchase (Details Textual)	9 Months Ended
	Sep. 30, 2021
Repurchase Agreement Counterparty, Weighted Average Maturity of Agreements (Year)	1 year

XML

Note 6 - Securities Sold Under Agreements to Repurchase - Securities Sold Under Agreement to Repurchase (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Securities sold under agreements to repurchase	$ 175,850,000	$ 118,365,000
Average daily balance during the period	151,522,000	132,880,000
Maximum daily balance during the period	$ 195,570,000	$ 173,186,000
Securities Sold under Agreements to Repurchase [Member]
Average interest rate at end of period	0.11%	0.12%
Average interest rate during the period	0.11%	0.12%

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances (Details Textual) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Long-term Federal Home Loan Bank Advances, Total	$ 394,000,000	$ 394,000,000
Line of Credit Facility, Maximum Borrowing Capacity	760,000,000
Line of Credit Facility, Remaining Borrowing Capacity	360,000,000
Federal Home Loan Bank of Indianapolis [Member]
Long-term Federal Home Loan Bank Advances, Total	$ 394,000,000	$ 394,000,000
Federal Home Loan Bank of Indianapolis [Member] | Minimum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	0.55%	0.55%
Federal Home Loan Bank of Indianapolis [Member] | Maximum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	3.18%	3.18%
Federal Home Loan Bank of Indianapolis [Member] | Weighted Average [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	2.06%	2.06%

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances - Maturities of Currently Outstanding FHLB Advances (Details)	Sep. 30, 2021 USD ($)
2021	$ 20,000,000
2022	94,000,000
2023	80,000,000
2024	80,000,000
2025	50,000,000
Thereafter	$ 70,000,000

XML

Note 8 - Commitments and Off-balance Sheet Risk (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Reserve or Liability Balance for Financial Instruments With Off Balance Sheet Risk	$ 0	$ 0

XML

Note 8 - Commitments and Off-balance Sheet Risk - Exposure to Credit Losses (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Contractual amounts of financial instruments with off-balance sheet risk	$ 1,573,219,000	$ 1,430,195,000
Standby Letters of Credit [Member]
Contractual amounts of financial instruments with off-balance sheet risk	29,375,000	20,543,000
Unused lines of Credit [Member] | Commercial Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	1,080,801,000	1,019,496,000
Unused lines of Credit [Member] | One to Four Family Mortgages [Member]
Contractual amounts of financial instruments with off-balance sheet risk	60,859,000	59,396,000
Unused lines of Credit [Member] | Consumer Credit Card [Member]
Contractual amounts of financial instruments with off-balance sheet risk	88,013,000	72,495,000
Unused lines of Credit [Member] | Consumer Other Financing Receivable 1 [Member]
Contractual amounts of financial instruments with off-balance sheet risk	61,047,000	30,707,000
Loan Origination Commitments [Member]
Contractual amounts of financial instruments with off-balance sheet risk	$ 253,124,000	$ 227,558,000

XML

Note 9 - Derivatives and Hedging Activities (Details Textual) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Noninterest Expense, Total	$ 26,210,000	$ 26,423,000	$ 77,519,000	$ 72,579,000
Interest Rate Swap [Member]
Noninterest Expense, Total			200,000		$ 100,000
Derivative Liability, Fair Value, Amount Not Offset Against Collateral, Total	5,300,000		5,300,000		1,000,000.0
Derivative, Collateral, Right to Reclaim Cash	4,600,000		4,600,000		1,100,000
Derivative, Notional Amount	$ 214,368,000		$ 214,368,000		$ 33,731,000

XML

Note 9 - Derivatives and Hedging Activities - Fair Value of Derivative Instruments (Details) - Interest Rate Swap [Member] - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Notional Amount	$ 214,368,000	$ 33,731,000
Other Assets [Member]
Derivative Assets Interest rate swaps	5,031,000	1,003,000
Other Liabilities [Member]
Derivative Liabilities Interest rate swaps	$ 5,250,000	$ 1,027,000

XML

Note 10 - Fair Values of Financial Instruments - Fair Value Hierarchy of Financial Instruments (Details) - USD ($)		Sep. 30, 2021	Dec. 31, 2020
Securities available for sale		$ 559,564,000	$ 387,347,000
Mortgages Held-for-sale, Fair Value Disclosure		49,100,000	24,000,000.0
Reported Value Measurement [Member]
Securities available for sale	[1]	559,564,000	387,347,000
FHLBI stock	[2]	18,002,000	18,002,000
Estimate of Fair Value Measurement [Member]
Securities available for sale	[1]	559,564,000	387,347,000
FHLBI stock	[2]	18,002,000	18,002,000
Fair Value, Inputs, Level 1 [Member]
Securities available for sale		0	0
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member]
Cash		17,709,000	16,953,000
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Cash		17,709,000	16,953,000
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member]
Cash equivalents		807,652,000	609,053,000
Mortgages Held-for-sale, Fair Value Disclosure		47,247,000	22,888,000
Mortgage servicing rights		11,146,000	8,189,000
Accrued interest receivable		9,986,000	10,861,000
Deposits		3,868,991,000	3,411,553,000
Repurchase agreements		175,850,000	118,365,000
FHLBI advances		394,000,000	394,000,000
Subordinated debentures		48,074,000	47,563,000
Accrued interest payable		1,406,000	2,313,000
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Cash equivalents		807,652,000	609,053,000
Mortgages Held-for-sale, Fair Value Disclosure		49,107,000	24,029,000
Mortgage servicing rights		14,321,000	10,006,000
Accrued interest receivable		9,986,000	10,861,000
Deposits		3,949,449,000	3,397,768,000
Repurchase agreements		175,850,000	118,365,000
FHLBI advances		406,002,000	410,881,000
Subordinated debentures		47,980,000	47,574,000
Accrued interest payable		1,406,000	2,313,000
Fair Value, Inputs, Level 3 [Member] | Reported Value Measurement [Member]
Loans, net		3,276,286,000	3,155,503,000
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Loans, net		$ 3,386,378,000	$ 3,294,522,000

[1] See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

[2] It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount.

XML

Note 11 - Fair Values (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Debt Securities, Available-for-sale, Total	$ 559,564,000	$ 387,347,000
Mortgages Held-for-sale, Fair Value Disclosure	$ 49,100,000	24,000,000.0
Real Estate Dependent Loans and Foreclosed Assets Estimated Selling Costs [Member]
Fair Value Inputs, Discount Factor	10.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	15.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	50.00%
Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	$ 134,610,000	107,824,000
Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Inputs, Level 3 [Member] | Municipal General Obligation Bonds [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	100,000
Available-for-sale Securities [Member]
SEC Schedule, 12-09, Valuation Allowances and Reserves, Amount, Ending Balance	$ 0	$ 0

XML

Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Debt Securities, Available-for-sale, Total	$ 559,564,000	$ 387,347,000
Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale, Total	364,386,000	242,141,000
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	39,453,000	24,890,000
Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	134,610,000	107,824,000
Municipal Revenue Bonds [Member]
Debt Securities, Available-for-sale, Total	20,615,000	11,992,000
Other Debt and Equity Securities [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member]
Debt Securities, Available-for-sale, Total	559,564,000	387,347,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	558,847,000	386,581,000
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	717,000	766,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Debt Securities, Available-for-sale, Total	364,386,000	242,141,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	364,386,000	242,141,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Total	39,453,000	24,890,000
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	39,453,000	24,890,000
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member]
Debt Securities, Available-for-sale, Total	134,610,000	107,824,000
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	133,893,000	107,058,000
Fair Value, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	717,000	766,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member]
Debt Securities, Available-for-sale, Total	20,615,000	11,992,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	20,615,000	11,992,000
Fair Value, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Debt Securities, Available-for-sale, Total	0	0
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Debt Securities, Available-for-sale, Total	500,000	500,000
Fair Value, Recurring [Member] | Other Debt and Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	$ 0	$ 0

XML

Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Details) - Fair Value, Nonrecurring [Member] - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Impaired loans	$ 4,286,000	$ 2,880,000
Foreclosed assets	111,000	701,000
Total	4,397,000	3,581,000
Fair Value, Inputs, Level 1 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans	4,286,000	2,880,000
Foreclosed assets	111,000	701,000
Total	$ 4,397,000	$ 3,581,000

XML

Note 12 - Regulatory Matters (Details Textual) - USD ($) $ / shares in Units, $ in Millions									3 Months Ended		9 Months Ended
	Dec. 15, 2021	Oct. 14, 2021	Sep. 15, 2021	Jul. 15, 2021	Jun. 16, 2021	Apr. 15, 2021	Mar. 17, 2021	Jan. 14, 2021	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	May 31, 2021	Dec. 31, 2020	May 31, 2019	Dec. 31, 2009
Preferred Securities of Subsidiary Trust									$ 46.0		$ 46.0			$ 45.5
Maximum Restricted Core Element Allowed in Tier One Capital Percent											25.00%
Maximum Level of Consolidated Aggregate Assets Allowing for Inclusion of Trust Preferred Securities in Tier One Capital																$ 15,000.0
Trust Preferred Securities Included in Tier One Capital									$ 46.0		$ 46.0			$ 45.5
Capital Conservation Buffer									2.50%		2.50%
Common Equity Tier 1 Risk Based Capital Required For Capital Adequacy to Risk Weighted Assets									0.070		0.070
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets									0.085		0.085
Capital Required for Capital Adequacy to Risk Weighted Assets									0.105		0.105
Common Stock, Dividends, Per Share, Declared (in dollars per share)				$ 0.30		$ 0.29		$ 0.29
Common Stock, Dividends, Per Share, Cash Paid (in dollars per share)			$ 0.30		$ 0.29		$ 0.29		$ 0.30	$ 0.28	$ 0.88	$ 0.84
Stock Repurchase Program, Authorized Amount													$ 20.0		$ 20.0
Stock Repurchased During Period, Shares (in shares)											636,000
Stock Repurchased During Period, Value											$ 19.8
Treasury Stock Acquired, Average Cost Per Share (in dollars per share)											$ 31.14
Stock Repurchase Program, Remaining Authorized Repurchase Amount									$ 8.4		$ 8.4
Forecast [Member]
Common Stock, Dividends, Per Share, Cash Paid (in dollars per share)	$ 0.30
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared (in dollars per share)		$ 0.30

XML

Note 12 - Regulatory Matters - Actual Capital Levels and Minimum Levels (Details) $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Total capital minimum required for capital adequacy, ratio	0.105
Tier 1 capital minimum required for capital adequacy, ratio	0.085
Common equity tier 1 capital minimum required for capital adequacy, ratio	0.070
Consolidated Entities [Member]
Total capital, amount	$ 484,594	$ 468,113
Total capital, ratio	0.125	0.138
Total capital minimum required for capital adequacy, amount	$ 310,930	$ 271,325
Total capital minimum required for capital adequacy, ratio	0.080	0.080
Tier 1 capital, amount	$ 448,010	$ 430,146
Tier 1 capital, ratio	0.115	0.127
Tier 1 capital minimum required for capital adequacy, amount	$ 233,197	$ 203,494
Tier 1 capital minimum required for capital adequacy, ratio	0.060	0.060
Common equity tier 1, amount	$ 402,010	$ 384,658
Common equity tier 1, ratio	0.103	0.113
Common equity tier 1 minimum required for capital adequacy, amount	$ 174,898	$ 152,621
Common equity tier 1 capital minimum required for capital adequacy, ratio	0.045	0.045
Tier 1 capital to average assets, amount	$ 448,010	$ 430,146
Tier 1 capital to average assets, ratio	0.093	0.098
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 192,098	$ 176,053
Tier 1 capital to average assets minimum required for capital adequacy, ratio	0.040	0.040
Bank [Member]
Total capital, amount	$ 482,625	$ 457,203
Total capital, ratio	0.124	0.135
Total capital minimum required for capital adequacy, amount	$ 310,796	$ 271,196
Total capital minimum required for capital adequacy, ratio	0.080	0.080
Total capital to be well capitalized, amount	$ 388,495	$ 338,995
Total capital to be well capitalized, ratio	0.100	0.100
Tier 1 capital, amount	$ 445,202	$ 419,236
Tier 1 capital, ratio	0.115	0.124
Tier 1 capital minimum required for capital adequacy, amount	$ 233,097	$ 203,397
Tier 1 capital minimum required for capital adequacy, ratio	0.060	0.060
Tier 1 capital to be well capitalized, amount	$ 310,796	$ 271,196
Tier 1 capital to be well capitalized, ratio	0.080	0.080
Common equity tier 1, amount	$ 445,202	$ 419,236
Common equity tier 1, ratio	0.115	0.124
Common equity tier 1 minimum required for capital adequacy, amount	$ 174,823	$ 152,548
Common equity tier 1 capital minimum required for capital adequacy, ratio	0.045	0.045
Common equity tier 1 capital to be well capitalized, amount	$ 252,522	$ 220,347
Common equity tier 1 capital to be well capitalized, ratio	0.065	0.065
Tier 1 capital to average assets, amount	$ 445,202	$ 419,236
Tier 1 capital to average assets, ratio	0.093	0.095
Tier 1 capital to average assets, minimum required for capital adequacy, amount	$ 192,031	$ 175,999
Tier 1 capital to average assets minimum required for capital adequacy, ratio	0.040	0.040
Tier 1 capital to average assets to be well capitalized, amount	$ 240,039	$ 219,999
Tier 1 capital to average assets to be well capitalized, ratio	0.050	0.050