MBWM 10-K & 10-Q changes, risk factors and insider trading

As the risk of nonpayment of loans is inherent in all lending activities, we maintain allowances for credit losses on loans, securities and off-balance sheet credit exposures. Regardless, nonpayment, when it occurs, may have a materially adverse effect on our earnings and overall financial condition as well as the value of our common stock. Our focus on commercial lending may result in a larger concentration of loans to small businesses. As a result, we may assume different or greater lending risks than other banks. We make various assumptions and judgments about the collectibilitycollectability of our loan portfolio and provide an allowance for credit losses based on several factors. If our assumptions are wrong, our allowance may not be sufficient to cover our losses, which would have an adverse effect on our operating results. The actual amounts of future provisions for credit losses cannot be determined at this time and may exceed the amounts of past provisions. Any increase in the allowance for credit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.

In addition, we continue to depend on our key commercial loan officers.bankers. Several of our commercial loan officersbankers are responsible, or share responsibility, for generating and managing a significant portion of our commercial loan portfolio. Our success can be attributed in large part to the relationships these officers as well as members of our management team have developed and are able to maintain with our customers as we continue to implement our community banking philosophy. The loss of any of these commercial loan officersbankers could adversely affect our loan portfolio and performance, and our ability to generate new loans. Many of our key employees have signed agreements with us agreeing not to compete with us in one or more of our markets for specified time periods if they leave employment with us. However, we may not be able to effectively enforce such agreements.

Similarly, physical effects could have a severe impact on the business and operations of our customers and vendors. Furthermore, consumer choices and shareholder demands could require our customers to invest more in cleaner energy manufacturing and procurement and to compete with innovative new products that generate lower emissions, which may or may not be successful. If our customers are not able to keep up with evolving climate change effects, it could ultimately have an adverse effect on our business and results of operations. Lastly, like other financial institutions, we also run a reputational risk of financing businesses that are responsible for significant green-house gas emissions or are related to carbon-based energy sources. While our risk management framework monitors various types of risks and applies risk mitigation techniques including for environmental risks, and while we have been conscious of our own carbon footprint and have established a SustainabilityEnterprise Excellence Committee, introduction of new climate-related legislation and related compliance costs as well as the unpredictable effects of climate change on us or our customers could have a negative impact on our business, financial condition and results of operations, even if temporary in nature.

There are rapidly changing discussions and regulations surrounding ESG matters, including greenhouse gas emissions, sustainability and climate-related risks; diversity, equity and inclusion; responsible sourcing and supply chain; human rights and social responsibility; and corporate governance and oversight. Given our commitment to ESG, we activelyannually managepublish thesean issuesEnterprise andExcellence haveReport, establishedwhich andreports publicly announcedon certain goals, commitments and targetsachievements whichrelated weto ESG, and more broadly to enterprise excellence. Our ESG program and our Enterprise Excellent Report are continually evolving and may refinechange in focus, content or even expand furtherscope in the future. TheseAny goals, commitments andor targets that we publish reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Evolving stakeholder expectations and our efforts and ability to manage these issues, provide updates on them and accomplish our goals, commitments and targets present numerous operational, regulatory, reputational, financial, legal and other risks, any of which may be outside of our control or could have a material adverse impact on our business, including on our reputation and stock price. Further, there is uncertainty around the accounting standards and climate-related disclosures associated with emerging laws and reporting requirements and the related costs to comply with the emerging regulations.

The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services,services. We are subject to intense competition from both other financial institutions and from non-bank entities, including FinTech companies. Technology has lowered the barriers to entry, with customers having a growing variety of traditional and nontraditional alternatives, such as thosecrowdfunding, relateddigital towallets, artificial intelligence, automationcryptocurrencies, and algorithms.money Intransfer addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.services. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we do. There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. Failure to successfully manage technological changes could have a material adverse effect on our business, financial condition and results of operations.

Our relationship with many of our clients is predicated upon our reputation as a fiduciary and a service provider that adheres to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client expectations and other issues with respect to one or more of our businesses could materially and adversely affect our reputation, our ability to attract and retain clients or our sources of funding for the same or other businesses. Preserving and enhancing our reputation also depends on maintaining systems and procedures that address known risks and regulatory requirements, as well as our ability to identify and mitigate additional risks that arise due to changes in our businesses and the marketplaces in which we operate, the regulatory environment and client expectations. If any of these developments hashave a material effect on our reputation, our business will suffer.

Minimum capital requirements may adversely affect our ability (and that of our bankbanks) to pay cash dividends, reduce our profitability, or otherwise adversely affect our business, financial condition or results of operations.

We are subject to extensive capital regulations imposed by federal and state banking regulations. These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized” institution. If our bankbanks were to fail to maintain itstheir status of “well-capitalized” under the applicable regulatory capital regulations, we may lose our status as a financial holding company and be subjected to a consent agreement requiring us to bring our bankbanks back to a “well-capitalized” status. Such an agreement may impose restrictions on our activities. If we were to fail to enter into such an agreement,agreement or fail to comply with the terms of such agreement, the Federal Reserve Board may impose more severe restrictions on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.Act. The regulatory environment is constantly evolving, with requirements frequently being introduced or amended. It is possible that increases in regulatory capital requirements and changes in how regulatory capital is calculated could require us to increase our capital levels by issuing additional securities that qualify as regulatory capital, thus potentially diluting our existing shareholders, or by taking other actions, such as selling assets, in order to maintain required capital ratios. We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our results of operations, cash flow and financial condition.

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; 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; 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, and unstable political and economic environments; difficulties integrating the business of Eastern Michigan Financial Corporation; focus of time and effort of our management team toward integration efforts; the anticipated benefits of the acquisition may not be realized; risks related to the indebtedness incurred to finance the merger; risks associated with the ongoing conversion of the core processing systems; and risk factors described in ourthis annualAnnual report on Form 10-K for the year ended December 31, 2024.Report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Discussions of 20222023 items and year-to-year comparisons between 20232024 and 20222023 that are not included in this FormAnnual 10-KReport can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.2024.

See Note 1 – Significant Accounting Policies in the Notes to our Consolidated Financial Statements in this FormAnnual 10-KReport for additional information on our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in the Notes to our Consolidated Financial Statements in this FormAnnual 10-KReport for further information regarding our loan portfolio and allowance.

This Management’s Discussion and Analysis should be read in conjunction with the consolidated financial statements contained in this Annual Report. This discussion provides information about the consolidated financial condition and results of operations of Mercantile Bank Corporation and its consolidated subsidiaries, Mercantile Bank, Eastern Michigan Bank (collectively “our bankbanks”) and, Mercantile Community Partners LLC ("MCP"), and Mercantile Insurance Center, Inc. (“our insurance company”), a subsidiary of ourMercantile bank.Bank. Unless the text clearly suggests otherwise, references to “us,” “we,” “our,” or “the company” include Mercantile Bank Corporation and its wholly-ownedwholly owned subsidiaries referred to above.

The potential impact of climate changeschange on our operations and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns and intensities, and changing temperature levels. These changes could be severe and vary by geographic location. Climate change may also affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable, and may impact our borrowers or the value of our loan collateral.

Our SustainabilityEnterprise Excellence Committee supports our ongoing commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to our organization. The SustainabilityEnterprise Excellence Committee is a cross-functional management committee, with oversight from the Governance and Nominating Committee and the Board of Directors, that assists us in: (1) settingestablishing generala strategiescadence relatingof toimprovement ESGthroughout matters;our banks for process efficiency and effectiveness, (2) developing, implementing,monitoring and monitoringassessing initiativesdevelopments related to improving our banks' understanding and policiesexecution basedof ongovernance, thoseenvironment, strategies;and community matters, and (3) recommending communications with employees, investors,investors and shareholdersstakeholders with respect to ESGgovernance, matters;environment, and (4) monitoring and assessing developments relating to, and improving our understanding of, ESGcommunity matters. The committeeEnterprise Excellence Committee met three times during 2024.2025. Highlights for 20242025 included expandingcontinued the impactgrowth of Mercantile Community Partners LLCMCP to facilitate low-income housing tax credits, the completioncredits and postingour investment in energy tax credits, completion of the 2024 Corporate Sustainability Report, hiring a fulltime Director of Enterprise Excellence atReport, thefull end of 2024 to oversee all ongoing ESG and sustainability efforts, implementationutilization of a sustainability reporting platform,platform increasedfor data tracking, continued support of first-time home buyersbuyer mortgage programs, and over 27,50028,000 hours of volunteering in the community completed by employees. OurWe bankalso maintainsmaintain a Clawback Policy; an Insider Trading Policy; Code of Ethics; Corporate Governance Guidelines; an Anti-Bribery and Anti-Corruption Policy; an Anti-Money Laundering, Bank Secrecy Act, Customer Identification and Due Diligence Programs Letter; Vendor and Supplier Code of Conduct; Environmental Policy; Human Rights Policy; and Community Supplier Diversity Program Policy;Policy, these policieswhich are reviewed and approved by our Board of Directors at least annually and can be found on our website.

Commercial loans increased $292$211 million, or approximately 9%,6%, during 2024.2025. Multi-family and residential rental property loans were up $143 million, nonowner-occupiedOur commercial real estate (“CRE”) loans grew $92.7$58.6 million,million during 2025, with Eastern Michigan Bank’s commercial andloans industrialaggregating loans$153 million at year-end 2025. Our commercial loan growth during 2025 was impacted by increased $32.7 million,payoffs and owner-occupiedpartial CREpaydowns loansof werelarger upcommercial $31.2loan million,relationships whiletotaling vacant$312 land,million landduring development,the andyear, residentialcompared constructionto loans$194 decreasedmillion $7.8during million.2024. As a percentage of total commercial loans, commercial and industrial loans and owner-occupied commercial real estate ("CRE") loans combined equaled 54.9%55.0% at December 31, 2024,2025, compared to 57.7%54.9% at year-end 2023.2024. The new commercial loan pipeline remains strong, and at Decemberyear-end 31, 2024,2025, we had $245$237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $9.8$36.7 million, or approximately 1%,4%, during 2024.2025. Our residential mortgage loans declined $60.7 million during 2025, with Eastern Michigan Bank’s residential mortgage loans aggregating $24.0 million at year-end 2025. Residential mortgage loan originations totaled $485$521 million during 2024,2025, compared to $386$485 million in 2023.2024. Approximately 78%81% of the residential mortgage loans originated during 20242025 were done so with the intent to sell, compared to about 78% and 53% in 2023.2024 and 2023, respectively. Combined with increased prepayments speeds of our residential mortgage loan portfolio during the past two years, the increase in the percentage of loans sold has resulted in a declining portfolio balance. The increases in volume of loans originated and percentage of loans sold have had a positive impact on mortgage banking income.

The overall quality of our loan portfolio remains strong, with nonperforming loans equalingtotaling 0.12%$7.9 million, or 0.16% of total loansloans, as of December 31, 2024.2025. Our nonperforming loans totaled $6.9 million with Eastern Michigan Bank’s nonperforming loans aggregating $1.0 million at year-end 2025. Accruing loans past due 30 to 89 days remain low,very low with littlevery limited foreclosed property activity throughout 2024.2025 Loanat both banks. Our loan charge-offs totaled $3.8$3.1 million during 2024,2025, while recoveries of prior period loan charge-offs totaled $0.9$1.2 million, providing for net loan charge-offs of $2.9$1.9 million, or 0.06%0.04% of average total loans, for the year.

Total deposits increased $797$586 million during 2024,2025, providing for a growth rate ofor approximately 20%.12%. Our deposits grew $111 million during 2025, with Eastern Michigan Bank’s deposits aggregating $475 million at year-end 2025. A majority of the growth was in money marketmarket, interest checking and local time deposit products. Securities sold under agreements to repurchase (“sweep accounts”) grew $111 million, while Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $80.8$60.9 million during 2024.2025. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $537$457 million, or about 10%8% of total funds, as of December 31, 2024.2025.

Net interest income decreasedincreased $2.5$10.0 million during 20242025 compared to 2023.2024. Interest income was up $50.1$8.7 million, in large part reflecting $569$460 million of growth in average earning assetsassets, andwhich more than offset a 3432 basis point increasedecline in the yield on average earning assets. Interest expense was updown $52.6$1.3 million, primarily reflecting $699 million growth in average interest-bearing liabilities and a 9135 basis point increasedecline in the cost of interest-bearing liabilities.liabilities which more than offset growth in interest-bearing liabilities aggregating $415 million.

We recorded a credit loss provision expense of $3.2 million during 2025, compared to $7.4 million during 2024, compared to $7.7 million during 2023.2024. The provision expense recorded during 20242025 wasin generallylarge necessitatedpart reflected a reserve increase related to changes in the economic forecast, a net increase in specific reserve allocations and a net increase from changes in several qualitative factors, which were partially mitigated by increasedreductions requiredto reservethe levelsallowance for credit losses stemming from loan growth, slowerfaster residential mortgage and consumer loan prepayment speeds that shortened the average durations of the portfolios and specificlower allocationsbaseline forloss two nonperforming nonreal-estate-related commercial loan relationships.rates.

Noninterest income increased $8.2$1.2 million during 20242025 compared to 2023,2024, primarily reflecting highergrowth mortgage banking income andin service charges on deposit accounts, themortgage latterbanking stemmingincome, fromcredit growthand indebit treasurycard managementincome, fees. Growth inand payroll service income and revenue associated with a private equity investment also benefited noninterest income during 2024,fees, as well as benefit claims on bank owned life insurance policies. Swap income declined in large part due to a lower volume of new swap transactions.

Noninterest expense increased $10.5$10.2 million during 20242025 compared to 2023.2024. Aggregate salary and benefit costs grew $9.1$5.3 million, primarily reflecting annual merit pay increases, market adjustments, higher bonus/incentive accrualsadjustments and residential mortgage lender commissions, lower residential mortgage loan deferred salary costs and increased medical insurance expenses.costs. Increased data processing costs were also recorded during 2024,2025, largely reflecting higher transaction volumes and software support costs, along with the introduction of new treasury management products and services. Higher allocations to the reserve for unfunded loan commitments were also recorded, largely reflecting a higher level of committed and accepted commercial loans. Professional fees associated with the acquisition of Eastern Michigan Financial Corporation totaled $1.8 million during 2025.

Average earning assets equaled 94.4%94.5% of average total assets during both2025, 2024compared andto 2023.94.7% during 2024. The loan portfolio continued to comprise a majority of earning assets, followed by securities and other interest-earning deposits.assets. Average total loans equaled 82.9%79.9% of average earning assets during 2025, compared to 82.6% in 2024, while average securities and other interest-earning assets comprised 14.1% and 6.0% of average earning assets during 2025 and 12.2% and 5.2% of average earning assets during 2024, comparedrespectively. toThe 84.7%decline in 2023,the while average securities and interest-earning deposits comprised 12.7% and 4.4%percentage of loans to average earning assets during 2024 and 13.1%similar andincrease 2.2%in the percentage of securities to average earning assets duringlargely 2023,reflect respectively.our strategic initiative to reduce our loan-to-deposit ratio.

As of December 31, 2024, availabilityAvailability on commercial construction and development loans that are in the construction phase totaled $245$237 million,million as of December 31, 2025, 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 $296$298 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 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 was relatively stable during 20242025 at approximately 42%,44%, a small increase from 20232024 but similar to our historical average.

Future Factors include, among others, ourdifficulties abilityand todelays successfully integratein the businessongoing integration of Mercantile Bank and Eastern Michigan FinancialBank Corporationand achieving anticipated synergies, cost savings and other benefits from the transaction; our ability to successfullyobtain consolidatetimely regulatory approval for the consolidation of Eastern Michigan Bank into Mercantile Bank;; our ability to successfully convertcomplete and integrate our core processing system conversion, including managing operational disruptions, customer impacts, data conversion issues, and implementation costs; 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.

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$0.1 million and $0.4 million during the second quarter and first six months of 2026, respectively) , and (ii) the previously announced core and digital banking system conversion ($2.3$0.5 million and $3.5 million during the second quarter and first six months of 2026, respectively). 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’sMercantile’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.

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 MarchJune 31,30, 2026, and December 31, 2025, and the results of operations for the three and six months ended MarchJune 31,30, 20262026, 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.

On December 31, 2025, we consummated the acquisition of Eastern Michigan Financial Corporation (“Eastern Michigan”), and its wholly-ownedwholly owned banking subsidiary, Eastern Michigan Bank, headquartered in Crosswell, Michigan. Eastern Michigan Bank will operate alongside Mercantile Bank until the first quarter of 2027,2027 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 quartersix months of 2026 represented the initial period of financial performance that included Eastern Michigan Bank’s operating results.

We reported net income of $22.7$25.9 million, or $1.32$1.50 per diluted share, for the firstsecond quarter of 2026, compared with net income of $19.5$22.6 million, or $1.21$1.39 per diluted share, during the second quarter of 2025. Net income during the first six months of 2026 totaled $48.6 million, or $2.82 per diluted share, compared to $42.2 million, or $2.60 per diluted share, during the first quartersix months of 2025. HigherGrowth in net income during both time periods primarily reflected increased net interest income and noninterest income combined with lower provision expense that more than offset increasedhigher noninterest costs.expense costs and federal income tax expense.

Commercial loans increased $16.7$132 million during the first threesix months of 2026, providing for an annualized growth rate of aboutapproximately 2%.7%. As had been the case during most of 2025, commercial loan growth during the first quartersix months 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 relationshipsrelationships, totaled $121 million and $180 million during the second and first three monthsquarters of 2026, respectively, 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%57.8% as of MarchJune 31,30, 2026, compared to 55.0% as of December 31, 2025. The commercial loan pipeline remains strong, and as of MarchJune 31,30, 2026, we had $240$236 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $22.6$40.3 million during the first threesix 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$287 million during the first quartersix months of 2026, reflecting an increase of over 27%18% compared to the first threesix months of 2025. Approximately 83%74% of the residential mortgage loans originated during the first quartersix months of 2026 were with the intent to sell, compared to aboutapproximately 80% during the first threesix months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the increasedrelatively high 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$5.8 million, or 0.16%0.1% of total loans, as of MarchJune 31,30, 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 threesix months of 2026, while recoveries of prior period loan charge-offs aggregated $0.4$0.9 million, providing for a net loan recovery of $0.3$0.9 million.

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago,Chicago (“FRB Chicago”), averaged $423$391 million during the first threesix months of 2026, compared to $267$230 million during the first threesix months of 2025. The higher average balance primarily reflects strong deposit growth during the first quartersix months 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$11.9 million during the first threesix months of 2026.2026, Aggregateconsisting netof growtha $122 million increase in almostlocal alldeposits interest-bearingand deposit types more than offset a decline of $50.4$110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and reductions in most business transaction deposit products fromcustomary customers’ customary tax and bonus payments and partnership distributions during thethat earlytime part of each first quarter.period. Securities sold under agreements to repurchase (“sweep accounts”) decreased $12.8$14.8 million and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $10.9$20.9 million during the first threesix months of 2026. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $395$325 million, or aboutapproximately 7%6% of total funds, as of MarchJune 31,30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Net interest income grew $7.4$7.8 million and $15.1 million during the second quarter and first threesix months of 2026, respectively, compared to the prior-year time periods, reflecting the combined impact of $4.7 million and $9.8 million increases in interest income and $3.1 million and $5.3 million decreases in interest expense, during the respective time periods. Our net interest margin during the second quarter of 2026 was eleven basis points higher than during the second quarter of 2025 and was eight basis points higher during the first six months of 2026 compared to the first quartersix months of 2025,2025. 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, withAlthough our yield on earning assets declining 31 basis points and our cost of funds decreasing 39 basis pointsdeclined during thatthe 2026 time period.periods Thecompared lowerto yieldthe onrespective earning2025 assetstime periods, largely reflectedreflecting the aggregate 75 basis point reduction in the federal funds rate during the last four months of 2025, with the lowerour cost of funds beingdeclined more primarily attributeddue to the decline in the interest rate environment and the onboarding of Eastern Michigan Bank’s relativelyrelative low-cost deposit base. Also contributing to higher net interest income was growth in earning assets. Average earning assets during the first quartersix months of 2026 totaled $6.42 billion, compared to $5.70$5.72 billion during the first quartersix months of 2025. Eastern Michigan Bank’s net interest income totaled $5.9 million and $11.7 million during the second quarter and first six months of 2026, respectively.

Noninterest income totaled $11.7$11.5 million and $23.2 million during the second quarter and first threesix months of 2026, respectively, compared to $8.7$11.5 million and $20.2 million during the firstrespective quartertime ofperiods in 2025. We recorded improvements in virtually all noninterest income categories, including solidstrong growth in treasury management fees, card income, and payroll service fees, but lower mortgage banking income, card income,and interest rate swap income. Eastern Michigan Bank’s noninterest income totaled $0.6 million and payroll$1.1 servicemillion fees.during the second quarter and first six months of 2026, respectively. 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.credits during the first quarter of 2026.

Total assets increaseddecreased $110$15.7 million during the first threesix months of 2026, totaling $6.95$6.82 billion as of MarchJune 31,30, 2026. Interest-earningTotal depositsloans increased $111$93.7 million and securities available for sale grew $23.2$23.3 million, while totalinterest-earning loansdeposit balances declined $5.2$147 million during the first quartersix months of 2026. DepositsTotal deposits increased $135$11.9 million, while sweep accounts declined $12.8$14.8 million and FHLBI advances were down $10.9$20.9 million during the first threesix months of 2026.

Our loan portfolio has historically been primarily comprised of commercial loans. Commercial loans totaled $3.94$4.05 billion, or 81.7%82.4% of total loans, as of MarchJune 31,30, 2026. Commercial loans increased $16.7$132 million during the first threesix months of 2026, providing for an annualized growth rate of aboutapproximately 2%.7%. As had been the case during most of 2025, commercial loan growth during the first quartersix months 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 relationshipsrelationships, totaled $121 million and $180 million during the second and first three monthsquarters of 2026, respectively, 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 CRE loans equaled 57.8% as of June 30, 2026, compared to 55.0% as of December 31, 2025.

During the first quarter of 2026, commercialCommercial and industrial loans increased $55.3$163 million, owner-occupied CRE loans were up $20.2$25.0 million and land development and construction loans expanded by $2.2$2.0 million, while multi-family and residential rental property loans declined $52.0$39.0 million and non-owner occupied CRE loans were down $8.9$18.8 million.million Asduring athe percentagefirst six months 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, 2025.2026.

Availability on commercial construction and development loans that are in the construction phase totaled $240$236 million as of MarchJune 31,30, 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$234 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,limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit averaged aboutapproximately 40%41% during the first threesix months of 2026, compared to approximately 44% during all of 2025.

Residential mortgage loans totaled $768$751 million, or 15.9%15.3% of total loans, as of MarchJune 31,30, 2026. Residential mortgage loans decreased $22.6$40.3 million during the first threesix 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$287 million during the first quartersix months of 2026, reflecting an increase of over 27%18% compared to the first threesix months of 2025. Approximately 83%74% of the residential mortgage loans originated during the first quartersix months of 2026 were with the intent to sell, compared to aboutapproximately 80% during the first threesix months of 2026.2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the increasedrelatively high 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$115 million, or 2.4%2.3% of total loans, as of MarchJune 31,30, 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. Home equity lines of credit comprised approximately 79% of other consumer-related loans as of June 30, 2026.

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 designedmeant 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 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 endquarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outsideexternal 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$5.8 million, or 0.2%0.1% of total loans, as of MarchJune 31,30, 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.quarter-end. Gross loan charge-offs were nominal during the first threesix months of 2026, while recoveries of prior period loan charge-offs aggregated $0.4$0.9 million, providing for a net loan recovery of $0.3$0.9 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 allowance equaled $56.7$55.4 million, or 1.18%1.13% of total loans and 752%955% of nonperforming loans, as of MarchJune 31,30, 2026. The allowance was comprised of $52.9$54.5 million in general reserves relating to performing loans and $3.8$0.9 million in specific reserves on other loans, primarily nonperforming loans, as of MarchJune 31,30, 2026. Loans with an aggregate carrying value of $3.4$0.6 million as of MarchJune 31,30, 2026, had been subject to previous partial charge-offs aggregating $3.1$0.2 million over the past several years. There were no specific reserves allocated to loans that had been subject to a previous partial charge-off as of June 30, 2026.

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the threesix months ended MarchJune 31,30, 2026.

Securities available for sale increased $23.2$23.3 million during the first threesix months of 2026, totaling $1.13 billion as of MarchJune 31,30, 2026. There were no purchases or maturities of U.S. Treasury securities during the first six months of 2026. Purchases of U.S. Government agency bonds during the first threesix months of 2026 aggregated $38.5$68.1 million, while proceeds from maturities totaled $10.0$18.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first threesix months of 2026, while proceeds from principal paydowns aggregated $4.3$9.3 million. Purchases of municipal bonds totaled $4.4$13.2 million during the first threesix months of 2026;2026, therewhile wereproceeds nofrom maturities orand calls.calls aggregated $17.4 million. As of MarchJune 31,30, 2026, the portfolio was primarily comprised of U.S. Treasury and U.S. Government agency bonds (64%66%), municipal bonds (25%24%), U.S. Government agency guaranteed mortgage-backed securities (7%) and domesticother bonds (4%3%). All of our securities are currently designated as available for sale,sale and are therefore stated at fair value. The fair value of securities designated as available for sale totaled $1.13 billion as of MarchJune 31,30, 2026, totaled $1.13 billion, including a net unrealized loss of $37.0$40.5 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.

FHLBI stock totaled $22.1 million as of MarchJune 31,30, 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 isare comprised of funds on deposit with the Federal Reserve Bank of Chicago, totaled $267 million as of June 30, 2026. Interest-earning deposits averaged $423$391 million during the first threesix months of 2026, compared to $267$230 million during the first threesix months of 2025. The higher average balance primarily reflects strong local deposit growth duringthroughout the2025 firstand quarterinto of 20262026, and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth. Strong commercial loan growth and out-of-area deposit maturities during the second quarter of 2026 were largely funded by monies on deposit with the Federal Reserve Bank of Chicago, resulting in a June 30, 2026, balance that was lower than the average during the first six months of 2026.

Net premises and equipment equaled $61.9$60.7 million as of MarchJune 31,30, 2026, compared to $62.5 million as of December 31, 2025. Depreciation expense totaled $1.5$2.9 million during the first threesix months of 2026, while investments associated with renovations of existing facilities and equipment purchases aggregated $0.9$1.1 million.

Total deposits increased $135$11.9 million during the first threesix months of 2026, totaling $5.42 billion asconsisting of Marcha 31,$122 2026.million Aggregate net growthincrease in almostlocal alldeposits interest-bearingand deposit types more than offset a decline of $50.4$110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and reductions in most business transaction deposit products fromcustomary customers’ customary tax and bonus payments and partnership distributions during thethat earlytime partperiod. ofNoninterest-bearing each first quarter. Money market depositchecking accounts increased by $109$80.9 million, interestmoney checkingmarket accounts were up $56.9 million, local time deposits grew $16.7$41.6 million, and savings deposits increasedgrew $10.3$11.2 million, while noninterest-bearinginterest-bearing checking accounts declineddecreased $7.7$10.6 million duringand thelocal firsttime threedeposits monthsdeclined of$0.8 2026.million. 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$3.01 billion, or about 52%57% of total deposits, as of MarchJune 31,30, 2026, compared to approximately $2.9$2.91 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$14.8 million during the first quartersix months of 2026, totaling $220$217 million as of MarchJune 31,30, 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$223 million during the first threesix months of 2026, with a high daily balance of $243$257 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$20.9 million during the first threesix months of 2026, totaling $315$305 million as of MarchJune 31,30, 2026. Bullet advances aggregating $20.0$30.0 million were obtained during the first quartersix months of 2026, while bullet advance maturities aggregated $30.0$50.0 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 Mercantileour Bank,bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $837$847 million, as of MarchJune 31,30, 2026.

Shareholders’ equity increased $12.1$30.2 million during the first threesix months of 2026, equaling $737$755 million as of MarchJune 31,30, 2026. Positively impacting shareholders’ equity during the first threesix months of 2026 was net income of $22.7$48.6 million, which was partially offset by the payment of cash dividends totaling $6.6$13.3 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$2.9 million. AAn $5.2$8.0 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 threesix months of 2026.

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 theour Company.company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, maturedmatured, 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$325 million, or aboutapproximately 7%6% of total funds, as of MarchJune 31,30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Sweep accounts decreased $12.8$14.8 million during the first quartersix months of 2026, totaling $220$217 million as of MarchJune 31,30, 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$223 million during the first threesix months of 2026, with a high daily balance of $243$257 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 MarchJune 31,30, 2026, and during the first threesix months of 2026 is as follows:

FHLBI advances declined $10.9$20.9 million during the first threesix months of 2026, totaling $315$305 million as of MarchJune 31,30, 2026. Bullet advances aggregating $20.0$30.0 million were obtained during the first quartersix months of 2026, while bullet advance maturities aggregated $30.0$50.0 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 Mercantileour Bank,bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $837$847 million, as of MarchJune 31,30, 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. WeOur didaverage notbalance accesswas this line of creditnominal during the first threesix months of 2026. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $400$369 million during the first threesix 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$149 million as of MarchJune 31,30, 2026. We did not utilize this line of credit during the first threesix 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 MarchJune 31,30, 2026, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

The balance of certificates of deposit exceeding the FDIC insured limit and their maturity profile as of MarchJune 31,30, 2026, and December 31, 2025, were as follows:

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 MarchJune 31,30, 2026, we had a total of $2.47$2.23 billion in unfunded loan commitments and $30.9$34.1 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $2.18$2.00 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $289$234 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.

Shareholders’ equity increased $12.1$30.2 million during the first threesix months of 2026, equaling $737$755 million as of MarchJune 31,30, 2026. Positively impacting shareholders’ equity during the first threesix months of 2026 was net income of $22.7$48.6 million, which was partially offset by the payment of cash dividends totaling $6.6$13.3 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$2.9 million. AAn $5.2$8.0 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 threesix 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 13.5% as of June 30, 2026, compared to 13.8% as of both March 31, 2026, and December 31, 2025. Mercantile Bank’s total regulatory capital increased $3.5$8.7 million during the first threesix months of 2026, in large part reflecting net income totaling $23.8$50.6 million, which was partially offset by cash dividends paid to us aggregating $19.5$39.0 million. As of MarchJune 31,30, 2026, Mercantile Bank’s total regulatory capital equaled $779$784 million, or $215$205 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%23.1% as of MarchJune 31,30, 2026, compared to 20.2% as of December 31, 2025. Eastern Michigan Bank’s total regulatory capital increased $2.6$5.3 million during the first threesix months of 2026, partiallyin large part reflecting net income totaling $2.0$4.0 million and a $0.9$2.4 million reduction in the ineligible core deposit intangible balance due to amortization during the first quarter.six months of 2026. As of MarchJune 31,30, 2026, Eastern Michigan Bank’s total regulatory capital equaled $61.5$64.2 million, or $33.0$36.3 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 MarchJune 31,30, 2026, and December 31, 2025, are disclosed in Note 14 of the Notes to Consolidated Financial Statements.

We recorded net income of $22.7$25.9 million, or $1.32$1.50 per basic and diluted share, for the second quarter of 2026, compared with net income of $22.6 million, or $1.39 per basic and diluted share, for the second quarter of 2025. We recorded net income of $48.6 million, or $2.82 per basic and diluted share, for the first quartersix months of 2026, compared with net income of $19.5$42.2 million, or $1.21$2.60 per basic and diluted share, for the first quartersix months of 2025. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan Financial Corporation and the previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $25.2$26.4 million, or $1.46$1.53 per diluted share, for the second quarter of 2026, and $51.7 million, or $2.99 per diluted share, for the first quartersix months of 2026. DilutedUsing these non-GAAP measures, earnings per diluted share increased $0.25,$0.14, or approximately10.1%, 21%,in the second quarter of 2026, and $0.39, or 15.0%, in the first quartersix months of 20262026, compared to the first quarter ofrespective 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.periods.

The increaseincreases in net income during the first2026 three months of 2026periods compared to the respective prior-year2025 periodperiods primarily reflected growth in net interest income and noninterest income and a lower provisionprovisions for credit losses, which more than offset aincreased higher levellevels of noninterest expense. Higher levels of noninterest income, mainly reflecting growth in treasury management fees, bank owned life insurance income, and payroll services fees, also contributed to the increases in net income in the 2026 periods. Net interest income increased as earning asset expansion and a decreasedecreases in the costcosts of funds outweighed a lower yieldyields 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 lossesexpense recorded during the firstsecond quarter of 2026 primarily reflected improvementsthe toelimination of a $2.7 million specific allocation associated with the economicresolution forecast,of changesa innonperforming loancommercial mix,construction decreasesloan, towhile the residentialnegative mortgageprovision loanexpense portfolio,recorded andduring the first six months of 2026 mainly reflected a decline in specific allocations.allocations and changes in loan mix. Excluding the previously mentioned one-time core and digital banking system conversion and acquisition costs, the increaseincreases in noninterest expense during the first three months of 2026 mainlyperiods primarily reflected higher levels of salary and benefit costs, cost inflation, and data processingincreased costs of a larger balance sheet and allocationsbranch to the reserve for unfunded loan commitments.network.

Interest income during the firstsecond quarter of 2026 was $85.4$86.7 million, an increase of $5.1$4.7 million, or 6.3%,5.8%, from the $80.3$82.0 million earned during the firstsecond 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$6.43 billion during the firstsecond three monthsquarter of 2026, up $719$699 million, or 12.6%,12.2%, from the level of $5.70$5.73 billion during the respectiveprior-year 2025second period;quarter; average securities increased $325 million, average loans were up $199 million, average securities increased $357$196 million, and average other interest-earning assets grew $163$178 million. The yield on average earning assets was 5.42% during the firstcurrent-year threesecond months of 2026,quarter, a decreasedecline from 5.73%5.75% during the firstrespective three2025 months of 2025.period. The lowerdecreased yield mainlylargely stemmed from a reducedlower 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%6.01% during the firstsecond quarter of 2026, down from 6.28%6.29% during the firstsecond quarter of 2025, primarilymainly 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 ofReflecting 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, relatively higher-yielding loans represented a decreased percentage of earning assets and relatively lower-yielding securities accounted for an increased percentage of earning assets in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025. The yield on securities equaled 3.27%3.36% during the firstsecond quarter of 2026, up from 2.73%2.82% during the prior-year firstsecond quarter. The yield on other interest-earning assets, largelyprimarily consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.80%4.91% during the firstsecond three monthsquarter of 2025 to 4.00%4.04% during the respective 2026 period, reflecting the decreased interest rate environment.

Interest expense during the firstsecond quarter of 2026 was $29.5$29.4 million, a decrease of $2.3$3.1 million, or 7.1%,9.4%, from the $31.8$32.5 million expensed during the firstsecond quarter of 2025. The lower level of interest expense resulted from a decreasedecline in the weighted average cost of average interest-bearing liabilities, which more than offset growth in the average balance of these funds. The weighted average weighted cost of average interest-bearing liabilities declined from 3.08%3.09% during the firstsecond quarter of 2025 to 2.54%2.53% during the firstsecond 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 onboardingaddition of Eastern Michigan Bank’s deposit base, and a reduction in brokered deposits also contributed to the reduced weighted average cost of averagefunds. interest-bearingThe liabilities.latter Duringreflects a strategy to refine the firstdeposit threebase monthswhereby ofthe 2026,reliance averageon the brokered deposit market and other higher-priced deposit-only relationships is reduced. Average interest-bearing liabilities totaled $4.71 billion, up $529 million, or 12.6%, from $4.18$4.66 billion during the respectivesecond 2025quarter period.of 2026, compared to $4.21 billion during the prior-year second quarter, representing an increase of $450 million, or 10.7%.

Net interest income during the firstsecond quarter of 2026 was $55.9$57.3 million, an increase of $7.4$7.8 million, or 15.1%,15.7%, from the $48.5$49.5 million earned during the firstrespective quarter2025 of 2025.period. The increase reflected growth in earning assets,assets alongand withan a higherimproved net interest margin. The net interest margin was 3.55%3.59% in the current-year firstsecond quarter, up from 3.47%3.48% in the firstsecond quarter of 2025 due to a decreaseddecline in the cost of funds, which more than offset a lowerdecreased yield on average earning assets. The cost of funds equaled 1.87%1.83% in the firstsecond quarter of 2026, down from 2.26%2.27% in the prior-year firstsecond quarter mainlyprimarily due to lower costs of money market accounts and time deposits, largely reflecting the decreaseddecreasing interest rate environment, and an increase in low-cost deposits as a higher levelpercentage of low-costtotal depositfunding productssources. primarilyThe stemminglower yield on average earning assets mainly resulted from a decreased yield on commercial loans, largely reflecting the impact of the previously mentioned FOMC rate cuts, and a change in earning asset mix resulting from the additionaforementioned ofstrategic Easterninitiative Michiganto Bank’slower depositthe base.loan-to-deposit ratio.

The following tabletables setsset forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflectsreflect the average yield on assets and average cost of liabilities for the second quarters and first quarterssix months 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 second quarters and first threesix 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 second quarters of 2026 and 2025, respectively, and $600,000 and $510,000 in the first quarterssix months 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 quarterseach of the 2026 and 2025.2025 periods.