# Mercantile Bank Corp: Form 10-Q for the period ended Mar 31, 2026

- Company: [Mercantile Bank Corp](/companies/mbwm.md) (CIK 1042729)
- Form: 10-Q
- Filed: 2026-05-01
- Accepted by EDGAR: May 1, 2026, 08:29 ET
- Period: 2026-03-31
- Accession: 0001437749-26-014320
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1042729/000143774926014320/mbwm20260331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1042729/000143774926014320/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2026-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2026-01-01 to 2026-03-31 | $4.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2026-01-01 to 2026-03-31 | $22.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2026-01-01 to 2026-03-31 | $1.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2026-01-01 to 2026-03-31 | $1.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2026-01-01 to 2026-03-31 | 17,237,249 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2026-01-01 to 2026-03-31 | $28.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2026-01-01 to 2026-03-31 | $6.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2026-03-31 | $6.95bn | us-gaap:Assets |
| Total liabilities | at 2026-03-31 | $6.21bn | us-gaap:Liabilities |
| Shareholders' equity | at 2026-03-31 | $736.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,963 characters.

### 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 the Company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “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 that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence (“Future Factors”). 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, our ability to successfully integrate the business of Eastern Michigan Financial Corporation; our ability to successfully consolidate Eastern Michigan Bank into Mercantile Bank; our ability to successfully convert our core processing system; our ability to maintain adequate levels of allowance for credit losses; adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and non-traditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches, and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future 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, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the Covid-19 pandemic or similar public health threats, and measures implemented to combat them; and other risk factors, including those described in our annual report on Form 10-K for the year ended December 31, 2025. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

### Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

This report contains certain non-GAAP financial measures, including adjusted net income, adjusted noninterest expense, and adjusted diluted earnings per share, each of which excludes after-tax costs associated with (i) Mercantile’s acquisition of Eastern Michigan Financial Corporation that was completed during the fourth quarter of 2025 ($0.2 million), and (ii) the previously announced core and digital banking system conversion ($2.3 million). These non-GAAP financial measures are identified in this report where they appear. We believe that presenting these non-GAAP financial measures provides investors, analysts, and other interested parties with meaningful supplementary information to assess Mecantile’s underlying operational performance by removing the effect of costs we consider to be non-recurring in nature and not reflective of Mercantile’s core operating results. These non-GAAP financial measures are used by management to evaluate Mercantile’s ongoing operations, for internal planning and forecasting purposes, and to assess period-over-period comparability. Management believes it is useful for the reader to review these non-GAAP adjusted measures alongside the GAAP measures. Our definition of these adjusted financial measures may differ from similarly named measures used by others. These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for our GAAP measures.

### Introduction

The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Bank, Eastern Michigan Bank (collectively “our banks”), Mercantile Community Partners, LLC ("MCP"), and Mercantile Insurance Center, Inc., a subsidiary of Mercantile Bank, at March 31, 2026, and December 31, 2025, and the results of operations for the three months ended March 31, 2026 and 2025. 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

Accounting principles generally accepted in the United States of America (“GAAP”) are complex and require 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 estimates, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2025 (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.

Allowance for Credit Losses (“allowance”): The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on historical credit 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. Credit 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. The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance, while recoveries of loans previously charged-off are added to the allowance.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

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 loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from servicing 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.

Core Deposit Intangible: In whole bank or bank branch acquisitions, the primary identifiable intangible asset recorded is the value of core deposit intangibles, representing the estimated value of long-term deposit relationships acquired. The determination involves assumptions and estimates, typically determined through discounted cash flow analysis, considering customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. Amortization of core deposit intangibles occurs over estimated useful lives reviewed periodically for reasonableness. These estimated useful lives, typically ranging from seven to 10 years with an accelerated rate of amortization, are periodically reviewed for reasonableness. Identifiable intangible assets, including core deposit intangibles, are assessed for impairment when events or changes suggest the carrying value may not be recoverable. Our policy dictates recognition of an impairment loss equal to the difference between the asset’s carrying amount and fair value if the expected undiscounted future cash flows are less than the carrying amount. Estimating future cash flows involves multiple estimates and assumptions, as previously mentioned.

Goodwill: Accounting rules require us to determine the fair value of all the assets and liabilities of an acquired entity, and to record their fair value on the date of acquisition. We employ a variety of means in determining fair value, including the use of discounted cash flow analysis, market comparisons and projected future revenue streams. For those items for which we conclude that we have the appropriate expertise to determine fair value, we may choose to use our own calculation of fair value. In other cases, where the fair value is not readily determined, consultation with outside parties is used to determine fair value. Once valuations have been determined, the net difference between the price paid for the acquired entity and the fair value of the balance sheet is recorded as goodwill. Goodwill is assessed at least annually for impairment, with any such impairment recognized in the period identified. A more frequent assessment is performed if there are material changes in the market place or within the organizational structure.

### Financial Overview

On December 31, 2025, we consummated the acquisition of Eastern Michigan Financial Corporation and its wholly-owned banking subsidiary, Eastern Michigan Bank, headquartered in Crosswell, Michigan. Eastern Michigan Bank will operate alongside Mercantile Bank until the first quarter of 2027, at which time we plan to consolidate Eastern Michigan Bank into Mercantile Bank in conjunction with the completion of the conversion of our core operating system to a new provider. The first quarter of 2026 represented the initial period of financial performance that included Eastern Michigan Bank’s operating results.

We reported net income of $22.7 million, or $1.32 per diluted share, for the first quarter of 2026, compared with net income of $19.5 million, or $1.21 per diluted share, during the first quarter of 2025. Higher net interest income and noninterest income combined with lower provision expense more than offset increased noninterest costs.

Commercial loans increased $16.7 million during the first three months of 2026, providing for an annualized growth rate of about 2%. As had been the case during most of 2025, commercial loan growth during the first quarter of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships totaled $180 million during the first three months of 2026, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter. As a percentage of total commercial loans, commercial and industrial and owner-occupied commercial real estate (“CRE”) loans equaled 56.6% as of March 31, 2026, compared to 55.0% as of December 31, 2025. The commercial loan pipeline remains strong, and as of March 31, 2026, we had $240 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $22.6 million during the first three months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $128 million during the first quarter of 2026, reflecting an increase of over 27% compared to the first three months of 2025. Approximately 83% of the residential mortgage loans originated during the first quarter of 2026 were with the intent to sell, compared to about 80% during the first three months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the increased percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and percentage of loans sold has had a positive impact on mortgage banking income.

The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $7.5 million, or 0.16% of total loans, as of March 31, 2026. Accruing loans past due 30 to 89 days remain very low with no foreclosed properties at quarter-end. Gross loan charge-offs were nominal during the first three months of 2026, while recoveries of prior period loan charge-offs aggregated $0.4 million, providing for a net loan recovery of $0.3 million.

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $423 million during the first three months of 2026, compared to $267 million during the first three months of 2025. The higher average balance primarily reflects strong deposit growth during the first quarter of 2026 and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth.

Total deposits increased $135 million during the first three months of 2026. Aggregate net growth in almost all interest-bearing deposit types more than offset a decline of $50.4 million in out-of-area deposits and reductions in most business transaction deposit products from customers’ customary tax and bonus payments and partnership distributions during the early part of each first quarter. Securities sold under agreements to repurchase (“sweep accounts”) decreased $12.8 million and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $10.9 million during the first three months of 2026. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $395 million, or about 7% of total funds, as of March 31, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Net interest income grew $7.4 million during the first three months of 2026 compared to the first quarter of 2025, reflecting the combined impact of a $5.1 million increase in interest income and a $2.3 million decrease in interest expense. Our net interest margin during the first quarter of 2026 was 8 basis points higher than during the first quarter of 2025, with our yield on earning assets declining 31 basis points and our cost of funds decreasing 39 basis points during that time period. The lower yield on earning assets largely reflected the aggregate 75 basis point reduction in the federal funds rate during the last four months of 2025, with the lower cost of funds being primarily attributed to the decline in the interest rate environment and the onboarding of Eastern Michigan Bank’s relatively low-cost deposit base. Also contributing to higher net interest income was growth in earning assets. Average earning assets during the first quarter of 2026 totaled $6.42 billion, compared to $5.70 billion during the first quarter of 2025.

We recorded a negative provision for credit losses of $1.8 million during the first three months of 2026, compared to a positive provision for credit losses of $2.1 million during the first quarter of 2025. The negative provision expense mainly reflected improvements to the economic forecast, changes in loan mix, a lower residential mortgage loan portfolio balance and a decline in specific allocations.

Noninterest income totaled $11.7 million during the first three months of 2026, compared to $8.7 million during the first quarter of 2025. We recorded improvements in virtually all noninterest income categories, including solid growth in treasury management fees, mortgage banking income, card income, interest rate swap income and payroll service fees. We also recorded $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits.

Noninterest expense totaled $42.1 million during the first quarter of 2026, compared to $31.1 million during the first quarter of 2025. Excluding one-time costs aggregating $2.9 million related to the core and digital banking system conversion and $0.3 million associated with the acquisition of Eastern Michigan Financial Corporation, noninterest expense increased $7.8 million, or 25.0%, during the first three months of 2026 compared to the respective 2025 period using this non-GAAP measurement. The increase in noninterest expense mainly resulted from higher salary and benefit costs. A $1.2 million increase in allocations to the reserve for unfunded loan commitments, largely reflecting a significantly higher level of commercial loan commitments that have been accepted by customers, also contributed to the increase in noninterest expense. The remaining increase in noninterest expense largely reflects cost inflation and the increased cost of a larger balance sheet and branch network. Eastern Michigan Bank’s noninterest expense totaled $4.0 million during the first three months of 2026, including salary and benefit costs of $1.7 million, core deposit intangible asset amortization of $0.9 million, and data processing costs of $0.4 million.

Federal income tax expense was $4.6 million during the first three months of 2026, compared to $4.5 million during the first quarter of 2025. Federal income tax expense rose $0.1 million, while income before federal income tax expense increased $3.2 million. The acquisition of transferable energy tax credits and the benefits from low-income housing and historic tax credits provided for aggregate tax benefits of $0.8 million and $0.3 million during the first three months of 2026 and 2025, respectively. The effective tax rate was 16.9% and 18.8% during the first quarter of 2026 and 2025, respectively.

### Financial Condition

Total assets increased $110 million during the first three months of 2026, totaling $6.95 billion as of March 31, 2026. Interest-earning deposits increased $111 million and securities available for sale grew $23.2 million, while total loans declined $5.2 million during the first quarter of 2026. Deposits increased $135 million, while sweep accounts declined $12.8 million and FHLBI advances were down $10.9 million during the first three months of 2026.

Our loan portfolio has historically been primarily comprised of commercial loans. Commercial loans totaled $3.94 billion, or 81.7% of total loans, as of March 31, 2026. Commercial loans increased $16.7 million during the first three months of 2026, providing for an annualized growth rate of about 2%. As had been the case during most of 2025, commercial loan growth during the first quarter of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships totaled $180 million during the first three months of 2026, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter.

During the first quarter of 2026, commercial and industrial loans increased $55.3 million, owner-occupied CRE loans were up $20.2 million and land development and construction loans expanded by $2.2 million, while multi-family and residential rental property loans declined $52.0 million and non-owner occupied CRE loans were down $8.9 million. As a percentage of total commercial loans, commercial and industrial and owner-occupied CRE loans equaled 56.6% as of March 31, 2026, compared to 55.0% as of December 31, 2025.

Availability on commercial construction and development loans that are in the construction phase totaled $240 million as of March 31, 2026, with most of the 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 $289 million in committed and accepted new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial bankers also report additional opportunities they are currently discussing with existing borrowers and potential new customers. 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. Usage of existing commercial lines of credit averaged about 40% during the first three months of 2026, compared to approximately 44% during all of 2025.

Residential mortgage loans totaled $768 million, or 15.9% of total loans, as of March 31, 2026. Residential mortgage loans decreased $22.6 million during the first three months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $128 million during the first quarter of 2026, reflecting an increase of over 27% compared to the first three months of 2025. Approximately 83% of the residential mortgage loans originated during the first quarter of 2026 were with the intent to sell, compared to about 80% during the first three months of 2026. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the increased percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and percentage of loans sold has had a positive impact on mortgage banking income.

Other consumer-related loans totaled $113 million, or 2.4% of total loans, as of March 31, 2026. Home equity lines of credit comprised approximately 76% of that total balance. We expect this loan portfolio segment to remain relatively stable in dollar amount but decline as a percentage of total loans in future periods as the commercial loan segment grows.

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 designed to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions or other factors. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require modification 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 nonperforming 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.

The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $7.5 million, or 0.2% of total loans, as of March 31, 2026. The volume of nonperforming loans has remained under 0.3% of total loans since year-end 2015 and has averaged 0.1% over the past seven years. Accruing loans past due 30 to 89 days remain very low with no foreclosed properties at quarter end. Given the low levels of nonperforming and delinquent loans, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio. Gross loan charge-offs were nominal during the first three months of 2026, while recoveries of prior period loan charge-offs aggregated $0.4 million, providing for a net loan recovery of $0.3 million. 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 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 mortgage 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.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

The allowance equaled $56.7 million, or 1.18% of total loans and 752% of nonperforming loans, as of March 31, 2026. The allowance was comprised of $52.9 million in general reserves relating to performing loans and $3.8 million in specific reserves on other loans, primarily nonperforming loans, as of March 31, 2026. Loans with an aggregate carrying value of $3.4 million as of March 31, 2026, had been subject to previous partial charge-offs aggregating $3.1 million over the past several years.

Although we believe the allowance is adequate to absorb loan losses in our loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance.

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the three months ended March 31, 2026.

*(Dollars in thousands)*

| Commercial: | Allowance for Credit Losses | Total Loans | Allowance for Credit Losses to Total Loans | Nonaccrual Loans | Nonaccrual Loans to Total Loans | Allowance for Credit Losses to Nonaccrual Loans | Net Charge-Offs | Annualized Net Charge-Offs to Average Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $12,824 | $1,429,831 | 0.90% | $1,122 | 0.08% | 1,142.96% | $(156) | (0.05)% |
| Vacant land, land development and residential construction | 545 | 119,560 | 0.46 | 0 | 0 | NA | (36) | (0.18) |
| Real estate – owner occupied | 7,845 | 799,065 | 0.98 | 494 | 0.06 | 1,588.06 | (10) | (0.01) |
| Real estate – non-owner occupied | 14,661 | 1,101,758 | 1.33 | 2,732 | 0.25 | 536.64 | 0 | 0.00 |
| Real estate – multi-family and residential rental | 4,685 | 485,175 | 0.97 | 0 | 0 | NA | (4) | (0.01) |
| Total commercial | 40,560 | 3,935,389 | 1.03 | 4,348 | 0.11 | 932.84 | (206) | (0.02) |
| Retail: |  |  |  |  |  |  |  |  |
| 1-4 family mortgages | 13,464 | 768,237 | 1.75 | 3,114 | 0.41 | 432.37 | (130) | (0.07) |
| Other consumer | 2,689 | 113,067 | 2.38 | 81 | 0.07 | 3,319.75 | (9) | (0.04) |
| Total retail | 16,153 | 881,304 | 1.83 | 3,195 | 0.36 | 505.57 | (139) | (0.07) |
| Unallocated | 23 | NA | NA | NA | NA | NA | NA | NA |
| Total | $56,736 | $4,816,693 | 1.18% | $7,543 | 0.16% | 752.17% | $(345) | (0.03)% |

44

Securities available for sale increased $23.2 million during the first three months of 2026, totaling $1.13 billion as of March 31, 2026. Purchases of U.S. Government agency bonds during the first three months of 2026 aggregated $38.5 million, while proceeds from maturities totaled $10.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first three months of 2026, while proceeds from principal paydowns aggregated $4.3 million. Purchases of municipal bonds totaled $4.4 million during the first three months of 2026; there were no maturities or calls. As of March 31, 2026, the portfolio was primarily comprised of U.S. Treasury and U.S. Government agency bonds (64%), municipal bonds (25%), U.S. Government agency guaranteed mortgage-backed securities (7%) and domestic bonds (4%). 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 as of March 31, 2026, totaled $1.13 billion, including a net unrealized loss of $37.0 million. The net unrealized loss equaled $30.4 million as of December 31, 2025. 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. 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 any upcoming purchases to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at the current level of approximately 16% of total assets.

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.

FHLBI stock totaled $22.1 million as of March 31, 2026, unchanged from December 31, 2025. Our investment in FHLBI stock is necessary to engage in the FHLBI’s 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.

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $423 million during the first three months of 2026, compared to $267 million during the first three months of 2025. The higher average balance primarily reflects strong deposit growth during the first quarter of 2026 and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth.

Net premises and equipment equaled $61.9 million as of March 31, 2026, compared to $62.5 million as of December 31, 2025. Depreciation expense totaled $1.5 million during the first three months of 2026, while investments associated with renovations of existing facilities and equipment purchases aggregated $0.9 million.

Total deposits increased $135 million during the first three months of 2026, totaling $5.42 billion as of March 31, 2026. Aggregate net growth in almost all interest-bearing deposit types more than offset a decline of $50.4 million in out-of-area deposits and reductions in most business transaction deposit products from customers’ customary tax and bonus payments and partnership distributions during the early part of each first quarter. Money market deposit accounts increased by $109 million, interest checking accounts were up $56.9 million, local time deposits grew $16.7 million, and savings deposits increased $10.3 million, while noninterest-bearing checking accounts declined $7.7 million during the first three months of 2026. The deposit balance increases reflect new deposit account relationships and additional funds from existing deposit customers, largely from business and public units.

Uninsured deposits totaled approximately $2.8 billion, or about 52% of total deposits, as of March 31, 2026, compared to approximately $2.9 billion, or about 54% of total deposits, as of December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions we use for regulatory reporting requirements. Our level of uninsured deposits, which has remained relatively steady as a percentage of total deposits, is generally higher than banking industry averages given our commercial lending focus.

Sweep accounts decreased $12.8 million during the first quarter of 2026, totaling $220 million as of March 31, 2026. The aggregate balance of this funding type can be subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that several of the customers maintain. The average balance of sweep accounts equaled $222 million during the first three months of 2026, with a high daily balance of $243 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

FHLBI advances declined $10.9 million during the first three months of 2026, totaling $315 million as of March 31, 2026. Bullet advances aggregating $20.0 million were obtained during the first quarter of 2026, while bullet advance maturities aggregated $30.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI 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 Mercantile Bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $837 million, as of March 31, 2026.

Shareholders’ equity increased $12.1 million during the first three months of 2026, equaling $737 million as of March 31, 2026. Positively impacting shareholders’ equity during the first three months of 2026 was net income of $22.7 million, which was partially offset by the payment of cash dividends totaling $6.6 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $1.2 million. A $5.2 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders’ equity during the first three months of 2026.

### 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, and operate the 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 deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximize profitability, while providing adequate liquidity.

To assist in providing needed funds and managing interest rate risk, we periodically obtain monies from wholesale funding sources. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $395 million, or about 7% of total funds, as of March 31, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Sweep accounts decreased $12.8 million during the first quarter of 2026, totaling $220 million as of March 31, 2026. The aggregate balance of this funding type can be subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that several of the customers maintain. The average balance of sweep accounts equaled $222 million during the first three months of 2026, with a high daily balance of $243 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

Information regarding our repurchase agreements as of March 31, 2026, and during the first three months of 2026 is as follows:

*(Dollars in thousands)*

|  |  |
| --- | ---: |
| Outstanding balance at March 31, 2026 | $219,513 |
| Weighted average interest rate at March 31, 2026 | 2.68% |
| Maximum daily balance three months ended March 31, 2026 | $243,395 |
| Average daily balance for three months ended March 31, 2026 | $221,994 |
| Weighted average interest rate for three months ended March 31, 2026 | 2.70% |

FHLBI advances declined $10.9 million during the first three months of 2026, totaling $315 million as of March 31, 2026. Bullet advances aggregating $20.0 million were obtained during the first quarter of 2026, while bullet advance maturities aggregated $30.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI 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 Mercantile Bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $837 million, as of March 31, 2026.

We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an unsecured federal funds purchased line of credit. We did not access this line of credit during the first three months of 2026. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $400 million during the first three months of 2026. 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 $153 million as of March 31, 2026. We did not utilize this line of credit during the first three months of 2026 or at any time during the previous 17 fiscal years, and do not plan to access this line of credit in future periods.

The following table reflects, as of March 31, 2026, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

*(Dollars in thousands)*

|  | One Year or Less | One to Three Years | Three to Five Years | Over Five Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Deposits without a stated maturity | $4,473,805 | $0 | $0 | $0 | $4,473,805 |
| Time deposits | 886,862 | 47,420 | 11,431 | 0 | 945,713 |
| Short-term borrowings | 219,513 | 0 | 0 | 0 | 219,513 |
| Federal Home Loan Bank advances | 90,938 | 162,000 | 42,177 | 20,207 | 315,322 |
| Subordinated debentures | 0 | 0 | 0 | 51,186 | 51,186 |
| Subordinated notes | 0 | 0 | 0 | 89,743 | 89,743 |
| Term note | 10,000 | 17,500 | 0 | 0 | 27,500 |
| Other borrowed money | 0 | 0 | 0 | 1,588 | 1,588 |
| Premises and equipment leases | 1,187 | 1,988 | 606 | 1,124 | 4,905 |

The balance of certificates of deposit exceeding the FDIC insured limit and their maturity profile as of March 31, 2026, and December 31, 2025, were as follows:

*(Dollars in thousands)*

|  | March 31, 2026 | December 31, 2025 |
| --- | ---: | ---: |
| Up to three months | $106,268 | $88,138 |
| Three months to six months | 145,632 | 103,213 |
| Six months to twelve months | 112,717 | 108,745 |
| Over twelve months | 8,695 | 74,395 |
| Total certificates of deposit | $373,312 | $374,491 |

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 March 31, 2026, we had a total of $2.47 billion in unfunded loan commitments and $30.9 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $2.18 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $289 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.

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. We have developed contingency funding plans that provide a framework for meeting liquidity disruptions.

### Capital Resources

Shareholders’ equity increased $12.1 million during the first three months of 2026, equaling $737 million as of March 31, 2026. Positively impacting shareholders’ equity during the first three months of 2026 was net income of $22.7 million, which was partially offset by the payment of cash dividends totaling $6.6 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $1.2 million. A $5.2 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders’ equity during the first three months of 2026.

We and our banks 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. Mercantile Bank’s total risk-based capital ratio was 13.8% as of both March 31, 2026, and December 31, 2025. Mercantile Bank’s total regulatory capital increased $3.5 million during the first three months of 2026, in large part reflecting net income totaling $23.8 million, which was partially offset by cash dividends paid to us aggregating $19.5 million. As of March 31, 2026, Mercantile Bank’s total regulatory capital equaled $779 million, or $215 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Eastern Michigan Bank’s total risk-based capital ratio was 21.6% as of March 31, 2026, compared to 20.2% as of December 31, 2025. Eastern Michigan Bank’s total regulatory capital increased $2.6 million during the first three months of 2026, partially reflecting net income totaling $2.0 million and a $0.9 million reduction in the ineligible core deposit intangible balance due to amortization during the first quarter. As of March 31, 2026, Eastern Michigan Bank’s total regulatory capital equaled $61.5 million, or $33.0 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.”

Our and our banks’ capital ratios as of March 31, 2026, and December 31, 2025, are disclosed in Note 14 of the Notes to Consolidated Financial Statements.

### Results of Operations

We recorded net income of $22.7 million, or $1.32 per basic and diluted share, for the first quarter of 2026, compared with net income of $19.5 million, or $1.21 per basic and diluted share, for the first quarter of 2025. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan Financial Corporation and previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $25.2 million, or $1.46 per diluted share, for the first quarter of 2026. Diluted earnings per share increased $0.25, or approximately 21%, in the first quarter of 2026 compared to the first quarter of 2025 using this non-GAAP measure. The first quarter of 2026 represented the initial period of financial performance that included Eastern Michigan Bank’s operating results.

The increase in net income during the first three months of 2026 compared to the respective prior-year period reflected growth in net interest income and noninterest income and a lower provision for credit losses, which more than offset a higher level of noninterest expense. Net interest income increased as earning asset expansion and a decrease in the cost of funds outweighed a lower yield on earning assets and growth in interest-bearing liabilities. The increase in noninterest income mainly reflected higher levels of treasury management fees, interest rate swap income, and mortgage banking income. The negative provision for credit losses recorded during the first quarter of 2026 primarily reflected improvements to the economic forecast, changes in loan mix, decreases to the residential mortgage loan portfolio, and a decline in specific allocations. Excluding the previously mentioned one-time core and digital banking system conversion and acquisition costs, the increase in noninterest expense during the first three months of 2026 mainly reflected higher levels of salary and benefit and data processing costs and allocations to the reserve for unfunded loan commitments.

Interest income during the first quarter of 2026 was $85.4 million, an increase of $5.1 million, or 6.3%, from the $80.3 million earned during the first quarter of 2025. The increase resulted from growth in average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $6.42 billion during the first three months of 2026, up $719 million, or 12.6%, from the level of $5.70 billion during the respective 2025 period; average loans were up $199 million, average securities increased $357 million, and average other interest-earning assets grew $163 million. The yield on average earning assets was 5.42% during the first three months of 2026, a decrease from 5.73% during the first three months of 2025. The lower yield mainly stemmed from a reduced yield on loans and a change in earning asset mix, which more than offset an improved yield on securities resulting from the reinvestment of relatively low-yielding bonds and portfolio expansion activities, along with the positive impact resulting from the addition of Eastern Michigan Bank’s securities portfolio. The yield on loans was 6.04% during the first quarter of 2026, down from 6.28% during the first quarter of 2025, primarily due to reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) lowering the targeted federal funds rate. The FOMC decreased the targeted federal funds rate by 25 basis points in each of September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 77% of average total commercial loans. Denoting the success of a strategic initiative to lower the loan-to-deposit ratio and increase on-balance sheet liquidity and reflecting the impact of Eastern Michigan Bank’s liquid balance sheet, higher-yielding loans represented a decreased percentage of earning assets and lower-yielding securities accounted for an increased percentage of earning assets in the first quarter of 2026 compared to the first quarter of 2025. The yield on securities equaled 3.27% during the first quarter of 2026, up from 2.73% during the prior-year first quarter. The yield on other interest-earning assets, largely consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.80% during the first three months of 2025 to 4.00% during the respective 2026 period, reflecting the decreased interest rate environment.

Interest expense during the first quarter of 2026 was $29.5 million, a decrease of $2.3 million, or 7.1%, from the $31.8 million expensed during the first quarter of 2025. The lower level of interest expense resulted from a decrease in the weighted average cost of average interest-bearing liabilities, which more than offset growth in these funds. The average weighted cost of interest-bearing liabilities declined from 3.08% during the first quarter of 2025 to 2.54% during the first quarter of 2026 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment. An increase in low-cost deposit products as a percentage of total funding sources, primarily stemming from the onboarding of Eastern Michigan Bank’s deposit base, also contributed to the reduced weighted average cost of average interest-bearing liabilities. During the first three months of 2026, average interest-bearing liabilities totaled $4.71 billion, up $529 million, or 12.6%, from $4.18 billion during the respective 2025 period.

Net interest income during the first quarter of 2026 was $55.9 million, an increase of $7.4 million, or 15.1%, from the $48.5 million earned during the first quarter of 2025. The increase reflected growth in earning assets, along with a higher net interest margin. The net interest margin was 3.55% in the current-year first quarter, up from 3.47% in the first quarter of 2025 due to a decreased cost of funds, which more than offset a lower yield on average earning assets. The cost of funds equaled 1.87% in the first quarter of 2026, down from 2.26% in the prior-year first quarter mainly due to lower costs of money market accounts and time deposits, largely reflecting the decreased interest rate environment, and a higher level of low-cost deposit products primarily stemming from the addition of Eastern Michigan Bank’s deposit base.

The following table sets forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the first quarters of 2026 and 2025. 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 first three months of 2026 and 2025 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $300,000 and $255,000 in the first quarters of 2026 and 2025, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of approximately two basis points for the first quarters of 2026 and 2025.

MERCANTILE BANK CORPORATION

*(dollars in thousands)*

| ASSETS | Quarters ended March 31, 2026 Average Balance | Interest | Average Rate | 2025 Average Balance | Interest | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans | $4,828,031 | $71,896 | 6.04% | $4,629,098 | $71,730 | 6.28% |
| Investment securities | 1,119,988 | 9,149 | 3.27 | 763,095 | 5,212 | 2.73 |
| Other interest-earning assets | 467,991 | 4,681 | 4.00 | 304,325 | 3,651 | 4.80 |
| Total interest - earning assets | 6,416,010 | 85,726 | 5.42 | 5,696,518 | 80,593 | 5.73 |
| Allowance for credit losses | (58,773) |  |  | (55,657) |  |  |
| Other assets | 480,002 |  |  | 377,297 |  |  |
| Total assets | $6,837,239 |  |  | $6,018,158 |  |  |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY** |  |  |  |  |  |  |
| Interest-bearing deposits | $3,999,140 | $23,247 | 2.36% | $3,443,770 | $25,192 | 2.97% |
| Short-term borrowings | 221,994 | 1,479 | 2.70 | 221,288 | 1,763 | 3.23 |
| Federal Home Loan Bank advances | 318,332 | 2,556 | 3.21 | 376,211 | 2,898 | 3.08 |
| Other borrowings | 171,913 | 2,243 | 5.22 | 141,129 | 1,937 | 5.49 |
| Total interest-bearing liabilities | 4,711,379 | 29,525 | 2.54 | 4,182,398 | 31,790 | 3.08 |
| Noninterest-bearing deposits | 1,318,537 |  |  | 1,144,781 |  |  |
| Other liabilities | 73,957 |  |  | 96,834 |  |  |
| Shareholders’ equity | 733,366 |  |  | 594,145 |  |  |
| Total liabilities and shareholders’ equity | $6,837,239 |  |  | $6,018,158 |  |  |
| Net interest income |  | $56,201 |  |  | $48,803 |  |
| Net interest rate spread |  |  | 2.88% |  |  | 2.65% |
| Net interest spread on average assets |  |  | 3.33% |  |  | 3.29% |
| Net interest margin on earning assets |  |  | 3.55% |  |  | 3.47% |

50

We recorded a negative provision for credit losses of $1.8 million during the first quarter of 2026, compared to a positive provision for credit losses of $2.1 million during the first quarter of 2025. The negative provision expense recorded during the current-year first quarter mainly reflected improvements to the economic forecast, changes in loan mix, decreases to the residential mortgage loan portfolio, and a decline in specific allocations, which reduced the calculated allowance for credit losses by $0.6 million, $0.4 million, $0.2 million, and $0.2 million, respectively.

Noninterest income totaled $11.7 million during the first quarter of 2026, up $3.0 million, or 34.3%, from $8.7 million during the prior-year first quarter. The increase mainly reflected higher levels of treasury management fees, interest rate swap income, mortgage banking income, bank owned life insurance income, and payroll services fees. The increases in treasury management and payroll services fees primarily resulted from new commercial client acquisitions and effective marketing endeavors leading to customers’ amplified use of products and services, as well as a modified fee schedule. The growth in interest rate swap income mainly reflected a higher volume of new swap transactions, while the increase in mortgage banking income largely resulted from higher production and an increased percentage of loans originated with the intent to sell. Noninterest income during the first three months of 2026 included $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits.

Noninterest expense totaled $42.1 million during the first quarter of 2026, compared to $31.1 million during the first quarter of 2025. Excluding one-time costs aggregating $2.9 million related to the core and digital banking system conversion and $0.3 million associated with the acquisition of Eastern Michigan Financial Corporation, noninterest expense increased $7.8 million, or 25.0%, during the first three months of 2026 compared to the respective 2025 period using this non-GAAP measurement. The increase in noninterest expense mainly resulted from higher salary and benefit costs, largely reflecting annual merit pay increases, market adjustments, a larger bonus accrual, increased health insurance costs, higher payroll taxes, larger residential mortgage lender commissions and incentives, lower residential mortgage loan deferred salary costs, and increased stock-based compensation costs. A $1.2 million increase in allocations to the reserve for unfunded loan commitments, largely reflecting a significantly higher level of commercial loan commitments that have been accepted by customers, also contributed to the increase in noninterest expense. The remaining increase in noninterest expense during the first three months of 2026 primarily reflected cost inflation and the increased cost of a larger balance sheet and branch network. Eastern Michigan Bank’s noninterest expense totaled $4.0 million during the first quarter of 2026, including salary and benefit costs of $1.7 million, core deposit intangible asset amortization of $0.9 million, and data processing costs of $0.4 million.

During the first quarter of 2026, we recorded income before federal income tax of $27.3 million and federal income tax expense of $4.6 million. During the first quarter of 2025, we recorded income before federal income tax of $24.0 million and federal income tax expense of $4.5 million. The $0.1 million increase in federal income tax expense primarily resulted from a higher level of income before federal income tax. The acquisition of transferable energy tax credits and the net benefits from low-income housing and historic tax credit investments provided for aggregate tax benefits of $0.8 million and $0.3 million during the first three months of 2026 and 2025, respectively. The recording of the tax benefits positively impacted our effective tax rate, which equaled 16.9% during the first quarter of 2026, down from 18.8% during the prior-year first quarter.

## Market risk

As filed, 7,410 characters.

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.

The following table depicts our GAP position as of March 31, 2026:

*(Dollars in thousands)*

| Assets: | Within Three Months | Three to Twelve Months | One to Five Years | After Five Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Loans (1) | $3,145,244 | $225,994 | $1,043,903 | $401,552 | $4,816,693 |
| Securities available for sale (2) | 31,901 | 97,907 | 578,347 | 417,278 | 1,125,433 |
| Other interest-earning assets | 572,612 | 1,257 | 3,750 | 0 | 577,619 |
| Allowance for credit losses | 0 | 0 | 0 | 0 | (56,736) |
| Other assets | 0 | 0 | 0 | 0 | 482,026 |
| Total assets | $3,749,757 | $325,158 | $1,626,000 | $818,830 | $6,945,035 |
| Liabilities: |  |  |  |  |  |
| Interest-bearing deposits | 3,438,488 | 590,232 | 58,851 | 0 | 4,087,571 |
| Short-term borrowings | 219,513 | 0 | 0 | 0 | 219,513 |
| Federal Home Loan Bank advances | 20,000 | 70,938 | 204,177 | 20,207 | 315,322 |
| Other borrowed money | 62,774 | 17,500 | 89,743 | 0 | 170,017 |
| Noninterest-bearing checking | 0 | 0 | 0 | 0 | 1,331,947 |
| Other liabilities | 0 | 0 | 0 | 0 | 83,718 |
| Total liabilities | 3,740,775 | 678,670 | 352,771 | 20,207 | 6,208,088 |
| Shareholders' equity | 0 | 0 | 0 | 0 | 736,947 |
| Total liabilities & shareholders' equity | $3,740,775 | $678,670 | $352,771 | $20,207 | $6,945,035 |
| Net asset (liability) GAP | $8,982 | $(353,512) | $1,273,229 | $798,623 |  |
| Cumulative GAP | $8,982 | $(344,530) | $928,699 | $1,727,322 |  |
| Percent of cumulative GAP to total assets | 0.1% | (5.0)% | 13.4% | 24.9% |  |

(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 expected maturities based upon prepayment trends as of March 31, 2026.

53

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.

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 March 31, 2026, in which it was assumed that changes in market interest rates occurred ranging from up 300 basis points to down 400 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 $239 million in net interest income projected using our balance sheet amounts and anticipated replacement rates as of March 31, 2026. The resulting estimates are generally within our policy parameters established to manage and monitor interest rate risk.

*(Dollars in thousands)*

| Interest Rate Scenario | Dollar Change In Net Interest Income | Percent Change In Net Interest Income |
| --- | ---: | ---: |
| Interest rates down 400 basis points | $13,500 | 5.6% |
| Interest rates down 300 basis points | 16,000 | 6.7 |
| Interest rates down 200 basis points | (8,300) | (3.5) |
| Interest rates down 100 basis points | (7,000) | (2.9) |
| Interest rates up 100 basis points | 5,600 | 2.3 |
| Interest rates up 200 basis points | 11,500 | 4.8 |
| Interest rates up 300 basis points | 17,400 | 7.3 |

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.

## Controls and procedures

As filed, 789 characters.

As of March 31, 2026, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal 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 March 31, 2026.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 159 characters.

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, 2025.

Filed May 1, 2026.
Source: SEC EDGAR, the filing index for accession 0001437749-26-014320. Last ingested by Listed: Oct 31, 2026, 03:06 ET. No prices; not investment advice.