MERCANTILE BANK CORP Income Taxes Disclosure

NOTE 9 - FEDERAL INCOME TAXES

 

Pretax income is entirely related to domestic activities; we did not have any foreign operations, tax expense or tax benefits. The consolidated income tax expense was as follows: 

 

(Dollars in thousands)		2025				2024				2023
Current expense		$	12,655			$	19,090			$	22,518
Deferred expense (benefit)			2,085				(397	)			(2,036	)
Tax expense		$	14,740			$	18,693			$	20,482

 

A reconciliation of the differences between the federal income tax expense recorded and the amount computed by applying the federal statutory rate to income before income taxes were as follows:

 

(Dollars in thousands)		2025								2024								2023
		Amount				Percent				Amount				Percent				Amount				Percent
Tax at U.S. statutory rate		$	21,734				21.0	%		$	20,640				21.0	%		$	21,567				21.0	%
Tax credits net of proportional amortization and tax losses			(1,929	)			(1.9	)			(266	)			(0.3	)			24				0.0
Discount of purchased tax credits			(3,525	)			(3.4	)			0				NA				0				NA
Non-taxable or non-deductible items
Tax-exempt interest, net of interest expense disallowance			(1,265	)			(1.2	)			(1,027	)			(1.0	)			(862	)			(0.8	)
Bank owned life insurance			(683	)			(0.7	)			(529	)			(0.5	)			(303	)			(0.3	)
Non-deductible expenses			538				0.5				241				0.2				213				0.2
Other			(130	)			(0.1	)			(366	)			(0.4	)			(157	)			(0.2	)
Tax expense		$	14,740				14.2	%		$	18,693				19.0	%		$	20,482				19.9	%

 

The statutory tax rate was 21% for 2025, 2024 and 2023. We did not record any state income taxes.

 

Significant components of deferred tax assets and liabilities, included in other assets on our Consolidated Balance Sheets, as of December 31, 2025 and 2024 were as follows: 

 

(Dollars in thousands)		2025				2024
Deferred income tax assets
Allowance for credit losses		$	12,228			$	11,435
Deferred compensation			375				269
Stock compensation			977				1,011
Nonaccrual loan interest income			220				192
Unrealized loss on securities			6,379				13,245
Lease liability			792				928
Net operating loss carryforward			1,525				0
Other			850				567
Deferred tax asset			23,346				27,647
Deferred income tax liabilities
Depreciation			321				259
Prepaid expenses			780				685
Mortgage loan servicing rights			2,857				2,620
Deferred loan fees and costs			266				471
Right of use lease asset			792				928
Securities discount accretion			2,056				686
Business combination adjustments			4,849				1,626
Other			167				163
Deferred tax liability			12,088				7,438
Total net deferred tax asset		$	11,258			$	20,209

 

As of December 31, 2025, we had net operating loss carryforwards of $7.3 million related to the acquisition of Eastern Michigan Financial Corporation. The ability to utilize the net operating loss in future periods is limited based on the value of Eastern Michigan Financial Corporation's value at the time of the ownership change and applicable federal rates. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefits related to such assets will not be realized. We determined that no valuation allowance was required at year-end 2025 or 2024.

 

We had no unrecognized tax benefits at any time during 2025 or 2024. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in our income tax accounts; no such accruals existed at any time during 2025 or 2024. We are no longer no longer subject to examination by taxing authorities for years before 2022.