MERCANTILE BANK CORP Fair Value Disclosure

NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS

 

Carrying amount, estimated fair value and level within the fair value hierarchy of financial instruments were as follows at year end:

 

		Level in				2025								2024
		Fair Value				Carrying				Fair				Carrying				Fair
(Dollars in thousands)		Hierarchy				Amount				Value				Amount				Value
Financial assets
Cash and cash equivalents		Level 1				$	473,324			$	473,324			$	393,010			$	393,010
Securities available for sale		(1)					1,102,230				1,102,230				730,352				730,352
Loans, net		Level 3					4,763,697				4,830,844				4,546,327				4,558,628
Mortgage loans held for sale		Level 2					17,160				17,319				15,824				16,047
Federal Home Loan Bank stock		(2)					22,099				22,099				21,513				21,513
Accrued interest receivable		Level 2					23,638				23,638				21,401				21,401
Interest rate swaps		Level 2					23,212				23,212				26,793				26,793
Financial liabilities
Deposits		Level 2					5,284,452				5,024,489				4,698,366				4,541,896
Securities sold under agreements to repurchase		Level 2					232,291				232,291				121,521				121,521
Federal Home Loan Bank advances		Level 2					326,221				321,069				387,083				374,499
Subordinated debentures		Level 2					51,015				51,019				50,330				50,336
Subordinated notes		Level 2					89,657				86,826				89,314				81,825
Term note		Level 2					30,000				30,000				0				0
Accrued interest payable		Level 2					9,921				9,921				10,201				10,201
Interest rate swaps		Level 2					23,532				23,532				27,050				27,050

 

(1)

See Note 16 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 values of subordinated debentures, subordinated notes, and FHLBI advances are based on current rates for similar financing. The fair values of interest rate swaps are based on discounted cash flows using forecasted yield curves, along with insignificant unobservable inputs, such as borrower credit spreads. The fair value of other off-balance sheet items is estimated to be nominal.