MERCANTILE BANK CORP (MBWM)

CIK: 0001042729. SIC: 6022 State Commercial Banks. Latest 10-K as of: 2026-02-27.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6022 State Commercial Banks

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1042729. Latest filing source: 0001437749-26-005997.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-27. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001042729.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-01. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001042729.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001437749-26-014320.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Confidence: high. Filing date: 2026-05-01. Report date: 2026-03-31.

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

Forward Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and 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.

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MERCANTILE BANK CORPORATION

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.

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MERCANTILE BANK CORPORATION

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, Mich

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Confidence: high. Filing date: 2026-02-27. Report date: 2025-12-31.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The following discussion and other portions of this Annual Report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the financial services industry, the economy, and our company. Words such as “anticipates,” “believes,” "could," “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 (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include, among others, adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates; significant declines in the value of commercial real estate; market volatility; demand for products and services; 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 this Annual 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 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the fiscal year ended December 31, 2024.

CRITICAL ACCOUNTING ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) is based on Mercantile Bank Corporation’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our critical accounting estimates are highly dependent upon subjective or complex judgments and assumptions, and changes in such may have a significant impact on the financial statements, just as actual results may differ. We have reviewed the application of our critical accounting estimates with the Audit Committee of our Board of Directors.

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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. While historical credit loss experience provides the basis for the estimation of expected credit losses, our qualitative model adjusts for risk factors that are not inherently considered in the quantitative modeling process, but are nonetheless relevant in assessing the expected credit losses within the loan portfolio. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor. The various risks that may be considered in making qualitative adjustments include, among other things, the impact of (i) changes in lending policies and procedures, (ii) changes in the nature and volume of the loan portfolio and in the terms of loans, (iii) changes in the experience, ability and depth of lending management and staff, (iv) changes in the volume and severity of past due loans, nonaccrual loans and adversely classified loans, (v) changes in the quality of the credit review function, (vi) changes in the value of underlying collateral dependent loans, (vii) existence and effect of any concentrations of credit and any changes in such, and (viii) effect of other factors such as competition and legal and regulatory requirements. 

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 uncollectibility 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. Uncollectible 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 the Notes to our Consolidated Financial Statements in this Annual Report 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 Annual Report 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 lives of the mortgage loan pools, 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.

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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.

INTRODUCTION

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 banks”), Mercantile Community Partners LLC ("MCP"), and Mercantile Insurance Center, Inc. (“our insurance company”), a subsidiary of Mercantile Bank. Unless the text clearly suggests otherwise, references to “us,” “we,” “our,” or “the company” include Mercantile Bank Corporation and its wholly owned subsidiaries referred to above.

CLIMATE CHANGE

The potential impact of climate change 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. 

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE MATTERS

Our Enterprise 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 Enterprise 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) establishing a cadence of improvement throughout our banks for process efficiency and effectiveness, (2) monitoring and assessing developments related to improving our banks' understanding and execution of governance, environment, and community matters, and (3) recommending communications with employees, investors and stakeholders with respect to governance, environment, and community matters. The Enterprise Excellence Committee met three times during 2025. Highlights for 2025 included continued growth of MCP to facilitate low-income housing tax credits and our investment in energy tax credits, completion of the Enterprise Excellence Report, full utilization of a sustainability reporting platform for data tracking, continued support of first-time home buyer mortgage programs, and over 28,000 hours of volunteering in the community completed by employees. We also maintain 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 Program Policy, which are reviewed and approved by our Board of Directors at least annually and can be found on our website.

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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 Croswell, Michigan.  The newly acquired Eastern Michigan Bank will operate alongside our existing bank, Mercantile Bank, until the first quarter of 2027, at which time we plan to consolidate Eastern Michigan Bank into Mercantile Bank in conjunction with a conversion of our core operating system to a new provider.  Consideration totaled $95.8 million, consisting of 924,999 shares of common stock with an aggregate value of $44.9 million and cash totaling $50.9 million.  The aggregate fair value of assets acquired was $549 million, consisting largely of loans ($201 million) and securities ($198 million).  The aggregate value of liabilities acquired was $476 million, comprised almost exclusively of deposits.  We recorded goodwill of $23.2 million and a core deposit intangible asset of $20.4 million.

We use the word “our” throughout the following discussion to represent Mercantile Bank Corporation’s balance sheets as of December 31, 2024, and December 31, 2025, excluding the impact of the Eastern Michigan Financial Corporation acquisition consummated as of close of business on December 31, 2025.  This format provides for a delineation of Mercantile Bank Corporation’s results during 2025 and the acquisition impact.

We recorded net income of $88.8 million, or $5.47 per basic and diluted share, for 2025, compared with net income of $79.6 million, or $4.93 per basic and diluted share, for 2024.  Growth in net income largely reflected increased net interest income and noninterest income, lower provision expense and reduced federal income tax expense, which more than offset increased noninterest expenses.

Commercial loans increased $211 million, or approximately 6%, during 2025.  Our commercial loans grew $58.6 million during 2025, with Eastern Michigan Bank’s commercial loans aggregating $153 million at year-end 2025.  Our commercial loan growth during 2025 was impacted by increased payoffs and partial paydowns of larger commercial loan relationships totaling $312 million during the year, compared to $194 million during 2024.  As a percentage of total commercial loans, commercial and industrial loans and owner-occupied commercial real estate ("CRE") loans combined equaled 55.0% at December 31, 2025, compared to 54.9% at year-end 2024.  The new commercial loan pipeline remains strong, and at year-end 2025, we had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $36.7 million, or approximately 4%, during 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 $521 million during 2025, compared to $485 million in 2024.  Approximately 81% of the residential mortgage loans originated during 2025 were done so with the intent to sell, compared to about 78% and 53% in 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 totaling $7.9 million, or 0.16% of total loans, as of December 31, 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 very low with very limited foreclosed property activity throughout 2025 at both banks.  Our loan charge-offs totaled $3.1 million during 2025, while recoveries of prior period loan charge-offs totaled $1.2 million, providing for net loan charge-offs of $1.9 million, or 0.04% of average total loans, for the year.

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Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity.  The average balance of these funds equaled $309 million during 2025, compared to $237 million in 2024.  The higher average balance primarily reflects an increase in deposits associated with our strategic initiative to lower the loan-to-deposit ratio.

Total deposits increased $586 million during 2025, or approximately 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 market, 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 $60.9 million during 2025.  Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $457 million, or about 8% of total funds, as of December 31, 2025.

Net interest income increased $10.0 million during 2025 compared to 2024.  Interest income was up $8.7 million, in large part reflecting $460 million growth in average earning assets, which more than offset a 32 basis point decline in the yield on average earning assets.  Interest expense was down $1.3 million, primarily reflecting a 35 basis point decline in the cost of interest-bearing 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.  The provision expense recorded during 2025 in large part 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 reductions to the allowance for credit losses stemming from faster residential mortgage and consumer loan prepayment speeds that shortened the average durations of the portfolios and lower baseline loss rates.

Noninterest income increased $1.2 million during 2025 compared to 2024, primarily reflecting growth in service charges on deposit accounts, mortgage banking income, credit and debit card income, and payroll service 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 $10.2 million during 2025 compared to 2024.  Aggregate salary and benefit costs grew $5.3 million, primarily reflecting annual merit pay increases, market adjustments and lower residential mortgage loan deferred salary costs. Increased data processing costs were also recorded during 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.

Despite increased pre-tax income during 2025 compared to 2024, federal income tax expense was $4.0 million lower.  The reduction primarily reflects the acquisition of transferable energy tax credits, combined with net benefits associated with our low-income housing and historical tax credit activities.

FINANCIAL CONDITION

Total assets increased $783 million during 2025, totaling $6.84 billion as of December 31, 2025.  Our total assets increased $211 million during 2025, with Eastern Michigan Bank’s assets totaling $572 million at year-end 2025.  Total loans increased $221 million, securities available for sale were up $372 million and interest-earning deposits grew $82.6 million.  Our loans increased $17.4 million, securities available for sale were up $174 million and interest-earning deposits grew $40.5 million during 2025, with Eastern Michigan Bank’s loans, securities available for sale and interest-earning deposits totaling $204 million, $198 million and $42.1 million at year-end 2025, respectively.  Total deposits increased $586 million during 2025, with our deposits growing $111 million during the year and Eastern Michigan Bank’s deposits aggregating $475 million at year-end 2025.  Sweep accounts grew $111 million, while FHLBI advances declined $60.9 million during 2025.  Shareholders’ equity was up $140 million during 2025.

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Table of Contents

Earning Assets

Average earning assets equaled 94.5% of average total assets during 2025, compared to 94.7% during 2024.  The loan portfolio continued to comprise a majority of earning assets, followed by securities and other interest-earning assets.  Average total loans equaled 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, respectively.  The decline in the percentage of loans to average earning assets and similar increase in the percentage of securities to average earning assets largely reflect our strategic initiative to reduce our loan-to-deposit ratio.

Our loan portfolio has historically been primarily comprised of commercial loans.  Commercial loans increased $211 million during 2025, and totaled $3.92 billion at year-end 2025.  Our commercial loans grew $58.6 million during 2025, with Eastern Michigan Bank’s commercial loans aggregating $153 million at year-end 2025.  Our multi-family and residential rental property loans were up $59.9 million, commercial and industrial loans increased $47.7 million and vacant land, land development and residential construction loans were up $12.5 million.  Nonowner-occupied CRE loans declined $43.0 million and owner-occupied CRE loans were down $18.5 million.  Our commercial loan growth during 2025 was impacted by increased payoffs and partial paydowns of larger commercial loan relationships totaling $312 million during the year, compared to $194 million during 2024.  Eastern Michigan Bank’s commercial loan portfolio is well-diversified, with owner-occupied CRE loans totaling $48.5 million, commercial and industrial loans aggregating $39.4 million, vacant land, land development and residential construction loans totaling $37.9 million, nonowner-occupied CRE loans aggregating $25.3 million and multi-family and residential rental property loans totaling $1.5 million as of December 31, 2025.  As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 55.0% as of December 31, 2025, compared to 54.9% at year-end 2024. 

Availability on commercial construction and development loans that are in the construction phase totaled $237 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 $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 2025 at approximately 44%, a small increase from 2024 but similar to our historical average.

Residential mortgage loans decreased $36.7 million during 2025, and totaled $791 million at year-end 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 $521 million during 2025, compared to $485 million in 2024.  Approximately 81% of the residential mortgage loans originated during 2025 were done so with the intent to sell, compared to about 78% and 53% in 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.

Other consumer-related loans increased $46.5 million during 2025, and totaled $112 million at year-end 2025 with about 74% comprised of home equity lines of credit.  Our consumer loans increased $19.5 million during 2025, with Eastern Michigan Bank’s other consumer-related loans aggregating $27.0 million at year-end 2025.  We expect this loan portfolio segment to remain relatively steady in dollar amount but decline as a percent of total loans in future periods as the commercial loan segment grows.

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Table of Contents

The following table presents total loans outstanding as of December 31, 2025, according to scheduled repayments of principal on fixed rate loans and repricing frequency on variable rate loans. Floating rate commercial loans that are currently at interest rate floors are treated as fixed rate loans and are reflected using maturity date and not repricing frequency.

Less Than

One Through

After

(Dollars in thousands)

One Year

Five Years

Five Years

Total

Construction and land development

$

322,222

$

42,447

$

18,830

$

383,499

Real estate - residential properties

168,718

430,199

298,070

896,987

Real estate - multi-family properties

308,169

49,928

2,653

360,750

Real estate - commercial properties

1,334,504

432,061

69,710

1,836,275

Commercial and industrial

1,167,431

120,458

27,350

1,315,239

Consumer

2,594

20,380

6,164

29,138

Total loans

$

3,303,638

$

1,095,473

$

422,777

$

4,821,888

Fixed rate loans

$

229,553

$

666,800

$

194,728

$

1,091,081

Floating rate loans

3,074,085

428,673

228,049

3,730,807

Total loans

$

3,303,638

$

1,095,473

$

422,777

$

4,821,888

Our credit policies establish guidelines to manage credit risk and asset quality.  These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration.  The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending.  In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these items 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 restructuring in the future, are included on the internal loan 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 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 $7.9 million, or 0.16% of total loans, as of December 31, 2025.  Our nonperforming loans totaled $6.9 million with Eastern Michigan Bank’s nonperforming loans aggregating $1.0 million at year-end 2025.  The volume of nonperforming assets has remained under 0.3% of total assets 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 very limited foreclosed property activity throughout 2025 at both banks.  Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

Our loan charge-offs totaled $3.1 million during 2025, while recoveries of prior period loan charge-offs totaled $1.2 million, providing for net loan charge-offs of $1.9 million, or 0.04% of average total loans, for the year.  Loan charge-offs totaled $3.8 million during 2024, while recoveries of prior period loan charge-offs totaled $0.9 million, providing for net loan charge-offs of $2.9 million, or 0.06% of average total loans, for the year.  We continue our collection efforts on charged-off loans, and we 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.

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Table of Contents

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the year ended December 31, 2025. 

(Dollars in thousands)

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

Net Charge-Offs to Average Loans

Commercial:

Commercial and industrial

$

12,576

$

1,374,522

0.91

%

$

1,393

0.10

%

902.80

%

$

(674

)

(0.05

)%

Vacant land, land development and residential construction

478

117,373

0.41

201

0.17

237.81

(5

)

(0.01

)

Real estate – owner occupied

7,629

778,869

0.98

517

0.07

1,475.63

(6

)

(0.00

)

Real estate – non-owner occupied

15,074

1,110,674

1.36

2,732

0.25

551.76

2,800

0.25

Real estate – multi-family and residential rental

5,514

537,224

1.03

0

NA

NA

(17

)

(0.00

)

Total commercial

41,271

3,918,662

1.05

4,843

0.12

852.18

2,098

0.06

Retail:

1-4 family mortgages

14,199

790,857

1.80

2,946

0.37

481.98

(170

)

(0.02

)

Other consumer

2,638

112,369

2.35

81

0.07

3,256.79

(67

)

(0.09

)

Total retail

16,837

903,226

1.86

3,027

0.34

556.23

(237

)

(0.03

)

Unallocated

83

NA

NA

NA

NA

NA

NA

NA

Total

$

58,191

$

4,821,888

1.21

%

$

7,870

0.16

%

739.40

%

$

1,861

0.04

%

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the year ended December 31, 2024.

(Dollars in thousands)

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

Net Charge-Offs to Average Loans

Commercial:

Commercial and industrial

$

11,165

$

1,287,308

0.87

%

$

2,725

0.21

%

409.72

%

$

3,385

0.27

%

Vacant land, land development and residential construction

367

66,936

0.55

0

0

NA

(5

)

(0.01

)

Real estate – owner occupied

7,671

748,837

1.02

42

0.01

18,264.29

(171

)

(0.02

)

Real estate – non-owner occupied

10,919

1,128,404

0.97

0

0

NA

0

0

Real estate – multi-family and residential rental

3,667

475,819

0.77

0

0

NA

(15

)

(0.00

)

Total commercial

33,789

3,707,304

0.91

2,767

0.07

1,221.14

3,194

0.09

Retail:

1-4 family mortgages

18,702

827,597

2.26

2,975

0.36

628.64

(190

)

(0.02

)

Other consumer

1,936

65,880

2.94

0

0

NA

(144

)

(0.25

)

Total retail

20,638

893,477

2.31

2,975

0.33

693.71

(334

)

(0.04

)

Unallocated

27

NA

NA

NA

NA

NA

NA

NA

Total

$

54,454

$

4,600,781

1.18

%

$

5,742

0.12

%

948.35

%

$

2,860

0.06

%

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the year ended December 31, 2023.

(Dollars in thousands)

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

Net Charge-Offs to Average Loans

Commercial:

Commercial and industrial

$

7,441

$

1,254,586

0.59

%

$

249

0.02

%

2,988.35

%

$

30

0.00

%

Vacant land, land development and residential construction

384

74,753

0.51

0

0

NA

(35

)

(0.05

)

Real estate – owner occupied

7,186

717,667

1.00

70

0.01

10,265.71

(17

)

(0.00

)

Real estate – non-owner occupied

9,852

1,035,684

0.95

0

0

NA

0

0

Real estate – multi-family and residential rental

3,184

332,609

0.96

0

0

NA

(26

)

(0.01

)

Total commercial

28,047

3,415,299

0.82

319

0.01

8,792.16

(48

)

(0.00

)

Retail:

1-4 family mortgages

18,986

837,406

2.27

3,096

0.37

613.24

(18

)

(0.00

)

Home equity and other

2,881

51,053

5.64

0

0

NA

98

0.19

Total retail

21,867

888,459

2.46

3,096

0.35

706.30

80

0.01

Unallocated

0

NA

NA

NA

NA

NA

NA

NA

Total

$

49,914

$

4,303,758

1.16

%

$

3,415

0.08

%

1,461.61

%

$

32

0.00

%

F-10

Table of Contents

The following table depicts the ratio of our allowance to nonperforming loans:

12/31/25

12/31/24

12/31/23

Ratio of allowance to nonperforming loans

739.4

%

948.3

%

1,461.7

%

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 Annual Report 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 Annual Report for further information regarding our loan portfolio and allowance.

The allowance equaled $58.2 million, or 1.21% of total loans, and over 700% of nonperforming loans, as of December 31, 2025.  The allowance was comprised of $54.2 million in general reserves relating to performing loans and $4.0 million in specific reserves on other loans, primarily nonperforming loans, at year-end 2025.  Loans with an aggregate carrying value of $3.2 million as of December 31, 2025, had been subject to previous partial charge-offs aggregating $3.5 million over the past several years, including $2.8 million during 2025.  As of December 31, 2025, there were $2.7 million of specific reserves allocated to loans that had been subject to a previous partial charge-off.

Although we believe the allowance is adequate to absorb loan losses in our originated 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.

Securities available for sale increased $372 million during 2025, totaling $1.10 billion as of December 31, 2025.  Our securities available for sale increased $174 million, with Eastern Michigan Bank’s securities available for sale totaling $198 million at year-end 2025.  Our purchases of U.S. Government agency bonds during 2025 aggregated $167 million, while proceeds from matured and called U.S. Government agency bonds totaled $54.0 million.  There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during 2025; principal paydowns on U.S. Government agency guaranteed mortgage-backed securities totaled $3.4 million.  Our purchases of municipal bonds totaled $35.9 million during 2025; proceeds from matured municipal bonds totaled $9.9 million. 

The portfolio was primarily comprised of U.S. Government agency bonds (58%), municipal bonds (25%), U.S. Government agency guaranteed mortgage-backed securities (7%), U.S. Treasury securities (5%) and corporate bonds (4%) as of December 31, 2025.  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 December 31, 2025 totaled $1.10 billion, including a net unrealized loss of $30.4 million.  The net unrealized loss equaled $63.1 million as of December 31, 2024.  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 upcoming purchases to generally consist of U.S. Government agency and municipal bonds, with the securities portfolio maintained at about 15% to 17% of total assets.

Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, U.S. Treasury securities, corporate bonds 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 December 31, 2025, an increase of $0.6 million during 2025 reflecting Eastern Michigan Bank’s stock investment as of year-end 2025.  Our investment in FHLBI stock is necessary to engage in their advance and other financing programs.  We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

Other interest-earning assets, a vast majority of which is comprised of a deposit with the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity.  The average deposit balance at the Federal Reserve Bank of Chicago equaled $286 million during 2025 compared to $221 million in 2024.

F-11

Table of Contents

The following table shows by class of maturities as of December 31, 2025, the amounts and weighted average yields (on a fully taxable-equivalent basis) of investment securities: 

Carrying

Average

(Dollars in thousands)

Value

Yield

Obligations of U.S. Treasury:

One year or less

$

10,268

3.58

%

Over one through five years

45,233

3.59

Over five through ten years

0

0

Over ten years

0

0

55,501

3.59

Obligations of U.S. Government agencies:

One year or less

55,076

1.28

Over one through five years

357,012

2.68

Over five through ten years

227,685

3.42

Over ten years

0

0

639,773

2.82

Obligations of states and political subdivisions:

One year or less

19,045

3.20

Over one through five years

114,379

3.02

Over five through ten years

75,623

3.41

Over ten years

71,020

4.71

280,067

3.56

Mortgage-backed securities

75,762

4.50

Other investments

51,127

4.57

Totals

$

1,102,230

4.71

%

Non-Earning Assets

Cash and due from bank balances averaged 0.9% of total assets during 2025, similar to the average level during 2024, with no significant changes expected in future periods.  Net premises and equipment equaled $62.5 million as of December 31, 2025, representing an increase of $9.0 million during 2025.  Our aggregate investments in new and existing offices totaled $6.7 million, while depreciation expense aggregated $5.2 million.  Eastern Michigan Bank’s fixed assets totaled $7.5 million at year-end 2025.  We had no other real estate owned as of December 31, 2025.

Other assets equaled $218 million as of December 31, 2025, reflecting an increase of $48.0 million from year-end 2024.  Our other assets increased $32.7 million during 2025, with Eastern Michigan Bank’s other assets totaling $15.3 million as of December 31, 2025.  The increase is primarily associated with an increase of $35.5 million in receivables from the U.S. Department of Treasury largely reflecting activity in transferrable energy tax credit investments and net growth of $12.2 million in low-income housing and historical tax credit investments.

F-12

Table of Contents

Source of Funds

Total deposits increased $586 million during 2025, or approximately 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 market, interest checking and local time deposit products.  Sweep accounts grew $111 million, while FHLBI advances declined $60.9 million during 2025.  Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $457 million, or about 8% of total funds, as of December 31, 2025.

Our money market, interest-bearing checking and local time deposit accounts increased $124 million, $45.3 million and $24.2 million, respectively, during 2025, largely reflecting growth in deposits from existing customers and initial deposits from new customers stemming from our strategic initiative to grow local deposits to lower the loan-to-deposit ratio.  Our noninterest-bearing checking accounts declined $58.1 million; however, that includes an expected business deposit withdrawal of approximately $90 million made in early 2025 that had been deposited near the end of 2024.  Out-of-area deposits declined $19.2 million, and savings deposits were down $5.2 million as of December 31, 2025.  Eastern Michigan Bank’s deposits were comprised of interest checking accounts totaling $174 million, noninterest-checking accounts aggregating $133 million, savings accounts equaling $93.5 million, money market accounts totaling $57.0 million and time deposits aggregating $17.1 million as of December 31, 2025.

Uninsured deposits totaled approximately $2.9 billion, or about 54% of total deposits, as of December 31, 2025, compared to approximately $2.5 billion, or about 54% of total deposits, as of December 31, 2024.  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 stable as a percentage of total deposits, is generally higher than industry averages given our focus on commercial lending.

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

(Dollars in thousands)

Up to three months

$

88,138

Three months to six months

103,213

Six months to twelve months

108,745

Over twelve months

74,395

Total certificates of deposit

$

374,491

Sweep accounts increased $111 million during 2025, totaling $232 million as of December 31, 2025.  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.  In addition, we had one customer withdraw a large amount of funds near the end of 2024 that were returned in early 2025.  The average balance of sweep accounts equaled $239 million during 2025, with a high balance of $286 million and a low balance of $115 million.  Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts to overnight interest-bearing repurchase agreements.  Such repurchase agreements are not deposit accounts and are not afforded federal deposit insurance.  All of our sweep accounts are accounted for as secured borrowings.

FHLBI advances declined $60.9 million during 2025, totaling $326 million as of December 31, 2025.  Bullet advances aggregating $20.0 million were obtained during 2025, while bullet advance maturities aggregated $80.0 million.  Payments on amortizing advances totaled $0.9 million during 2025.  Bullet advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing 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.  Advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on certain commercial real estate property loans, and substantially all other assets of Mercantile Bank under a blanket lien arrangement.  Our borrowing line of credit at year-end 2025 totaled $1.08 billion, with remaining availability based on collateral of $777 million.

F-13

Table of Contents

Shareholders’ equity increased $140 million during 2025, totaling $725 million as of December 31, 2025.  Positively impacting shareholders’ equity was net income of $88.8 million, while negatively affecting shareholders’ equity were cash dividends on our common stock totaling $24.0 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 a total of $4.8 million.  Positively impacting shareholders’ equity during 2025 was a $25.8 million decline in the after-tax net unrealized loss on available for sale securities.  Common stock issued in conjunction with the acquisition of Eastern Michigan Financial Corporation totaled $44.9 million.

RESULTS OF OPERATIONS

FOR THE YEARS ENDED December 31, 2025 and 2024

Summary

We recorded net income of $88.8 million, or $5.47 per basic and diluted share, for 2025, compared to net income of $79.6 million, or $4.93 per basic and diluted share, for 2024. Diluted earnings per share increased $0.54, or 11.0%, during 2025 compared to 2024.

The increase in net income during 2025 compared to 2024 primarily reflected growth in net interest income and lower levels of provisions for credit losses and federal income tax expense, which more than offset increased noninterest expense.  A higher level of noninterest income, mainly reflecting growth in treasury management fees, bank owned life insurance income, mortgage banking income, and payroll services fees, also contributed to the increase in net income.  Net interest income increased during 2025 as growth in earning assets and a decline in the cost of funds more than offset a lower yield on earning assets and growth in interest-bearing liabilities.  The provision expense recorded during 2025 primarily reflected a reserve increase related to changes in the economic forecast, a net increase in specific allocations driven by a significant allocation for a deteriorated commercial construction loan relationship, and a net increase in qualitative factor allocations.  The impacts of these factors were partially offset by reductions in the reserve related to faster residential mortgage and consumer loan prepayment speeds and the associated reduced average lives of the portfolios and changes in baseline loss rates.  The decrease in federal income tax expense during 2025 primarily reflected the recording of tax benefits associated with the acquisition of transferable energy tax credits and investments in low-income housing and historic tax credit structures.  The higher level of noninterest expense during 2025 mainly resulted from increased salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, and lower residential mortgage loan deferred salary costs, the recording of costs related to the Eastern Michigan Financial Corporation acquisition, growth in data processing costs, and higher allocations to the reserve for unfunded loan commitments.

Net Interest Income

Net interest income, the difference between revenue generated from earning assets and the interest cost of funding those assets, is our primary source of earnings.  Interest income (adjusted for tax-exempt income) and interest expense totaled $331 million and $129 million, respectively, during 2025, providing for net interest income of $202 million.  During 2024, interest income and interest expense equaled $322 million and $130 million, respectively, providing for net interest income of $192 million.  In comparing 2025 with 2024, interest income increased 2.7%, interest expense decreased 1.0%, and net interest income was up 5.2%. The level of net interest income is primarily a function of asset size, as the weighted average interest rate received on earning assets is greater than the weighted average interest cost of funding sources; however, factors such as types and levels of assets and liabilities, the interest rate environment, interest rate risk, asset quality, liquidity, and customer behavior also impact net interest income as well as the net interest margin.  The $10.0 million increase in net interest income in 2025 compared to 2024 resulted from growth in earning assets, which more than offset a decreased net interest margin.  During 2025, earning assets averaged $5.83 billion, up $460 million, or 8.6%, from $5.37 billion during 2024.  Average loans increased $222 million, average securities grew $165 million, and average other interest-earning assets were up $73.3 million.  During 2025, the net interest margin equaled 3.47%, down from 3.58% during 2024 due to a lower yield on average earning assets, which more than offset a decreased cost of funds.  The yield on average earning assets was 5.69% during 2025, a decline from 6.01% during 2024.  The decreased yield resulted from a lower yield on loans, a change in earning asset mix, and a reduced yield on other interest-earning assets, which more than offset an improved yield on securities reflecting the reinvestment of relatively low-yielding bonds and portfolio growth activities.  The yield on loans was 6.26%  during 2025, down from 6.59% during 2024 largely due to reduced interest rates on variable-rate commercial loans stemming from the FOMC lowering the targeted federal funds rate by 50 basis points in September of 2024 and 25 basis points in each of November and December of 2024 and September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 75% of average total commercial loans.  Signifying the success of a strategic initiative to lower the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans accounted for a decreased percentage of earning assets and lower-yielding securities represented an increased percentage of earning assets in 2025 compared to 2024.  The decreased yield on other interest-earning assets during 2025 primarily reflected the lower interest rate environment.  The yield on securities equaled 2.86% during 2025, up from 2.29% during 2024.  The cost of funds was 2.22% during 2025, down from 2.43% during 2024, mainly due to decreased rates paid on money market accounts and time deposits, reflecting the reduced interest rate environment that began in September of 2024 in conjunction with the FOMC’s lowering of the targeted federal funds rate.

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Table of Contents

The following table depicts the average balance, interest earned and paid, and weighted average rate of our assets, liabilities, and shareholders’ equity during 2025, 2024, and 2023. The subsequent table portrays the dollar amount of change in interest income and interest expense of interest-earning assets and interest-bearing liabilities, respectively, segregated between change due to volume and change due to rate. Tax-exempt securities interest income and yield for 2025, 2024, and 2023 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $1.0 million in 2025, 2024, and 2023 for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of less than two basis points in 2025 and 2024 and slightly over two basis points in 2023.

Years ended December 31,

(Dollars in thousands)

2025

2024

2023

Average

Average

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

Taxable securities

$

650,067

$

17,544

2.70

%

$

500,588

$

9,917

1.98

%

$

458,401

$

7,611

1.66

%

Tax-exempt securities

172,517

5,975

3.46

157,313

5,143

3.27

148,082

4,683

3.16

Total securities

822,584

23,519

2.86

657,901

15,060

2.29

606,483

12,294

2.03

Loans

4,655,077

291,355

6.26

4,432,671

291,921

6.59

4,046,815

252,393

6.24

Other interest-earning assets

350,589

16,340

4.66

277,247

15,541

5.61

137,006

7,691

5.61

Total earning assets

5,828,250

331,214

5.69

5,367,819

322,522

6.01

4,790,304

272,378

5.69

Allowance for credit losses

(58,142

)

(54,396

)

(45,590

)

Cash and due from banks

58,338

60,223

61,797

Other non-earning assets

340,194

294,009

257,182

Total assets

$

6,168,640

$

5,667,655

$

5,063,693

Interest-bearing checking accounts

$

716,456

$

10,838

1.51

%

$

666,814

$

9,493

1.42

%

$

605,220

$

5,740

0.95

%

Savings deposits

220,450

334

0.15

244,387

368

0.15

310,940

392

0.13

Money market accounts

1,604,297

49,393

3.08

1,279,559

50,596

3.95

899,927

29,149

3.24

Time deposits

988,245

41,945

4.24

867,391

40,938

4.72

567,988

20,163

3.55

Total interest-bearing deposits

3,529,448

102,510

2.90

3,058,151

101,395

3.32

2,384,075

55,444

2.33

Short-term borrowings

239,128

7,464

3.12

224,897

7,717

3.43

206,728

2,847

1.38

Federal Home Loan Bank advances

358,191

11,404

3.18

430,767

13,018

3.02

425,363

11,367

2.67

Other borrowings

142,312

7,772

5.46

140,352

8,286

5.90

139,195

8,155

5.86

Total interest-bearing liabilities

4,269,079

129,150

3.03

3,854,167

130,416

3.38

3,155,361

77,813

2.47

Noninterest checking accounts

1,185,730

1,174,082

1,372,840

Other liabilities

83,378

84,862

58,465

Total liabilities

5,538,187

5,113,111

4,586,666

Average equity

630,453

554,544

477,027

Total liabilities and equity

$

6,168,640

$

5,667,655

$

5,063,693

Net interest income

$

202,064

$

192,106

$

194,565

Rate spread

2.66

%

2.63

%

3.22

%

Net interest margin

3.47

%

3.58

%

4.06

%

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Table of Contents

Years ended December 31,

(Dollars in thousands)

2025 over 2024

2024 over 2023

Total

Volume

Rate

Total

Volume

Rate

Increase (decrease) in interest income

Taxable securities

$

7,627

$

3,446

$

4,181

$

2,306

$

744

$

1,562

Tax exempt securities

832

515

317

460

298

162

Loans

(566

)

14,282

(14,848

)

39,528

24,914

14,614

Other interest-earning assets

799

3,688

(2,889

)

7,850

7,861

(11

)

Net change in tax-equivalent interest income

8,692

21,931

(13,239

)

50,144

33,817

16,327

Increase (decrease) in interest expense

Interest-bearing checking deposits

1,345

731

614

3,753

634

3,119

Savings deposits

(34

)

(36

)

2

(24

)

(92

)

68

Money market accounts

(1,203

)

11,322

(12,525

)

21,447

14,079

7,368

Time deposits

1,007

5,370

(4,363

)

20,775

12,784

7,991

Short-term borrowings

(253

)

470

(723

)

4,870

271

4,599

Federal Home Loan Bank advances

(1,614

)

(2,282

)

668

1,651

146

1,505

Other borrowings

(514

)

114

(628

)

131

68

63

Net change in interest expense

(1,266

)

15,689

(16,955

)

52,603

27,890

24,713

Net change in tax-equivalent net interest income

$

9,958

$

6,242

$

3,716

$

(2,459

)

$

5,927

$

(8,386

)

Interest income, which is primarily generated from the loan portfolio, increased $8.7 million during 2025 from that earned in 2024, totaling $331 million in 2025 compared to $322 million in 2024.  The increase in interest income is attributable to growth in average earning assets, which more than offset a lower yield on average earning assets.  During 2025 and 2024, earning assets had an average yield (tax equivalent-adjusted basis) of 5.69% and 6.01%, respectively.  The decreased yield on average earning assets primarily resulted from a lower yield on loans, mainly reflecting reduced interest rates on variable-rate commercial loans stemming from the previously mentioned FOMC rate cuts, a change in earning asset mix, reflecting a decrease in higher-yielding loans and an increase in lower-yielding securities as a percentage of earning assets, and a lower yield on other interest-earning assets, reflecting the decreased interest rate environment.  An enhanced yield on securities, reflecting the reinvestment of relatively low-yielding bonds and portfolio growth activities, positively impacted the yield on average earning assets during 2025.

Interest income generated from the loan portfolio decreased $0.6 million in 2025 compared to the level earned in 2024.  A reduction in the loan yield from 6.59% in 2024 to 6.26% in 2025 resulted in a $14.9 million decrease in interest income, while growth in the loan portfolio during 2025 resulted in a $14.3 million increase in interest income.  The lower yield on loans primarily resulted from a decreased yield on commercial loans, which declined from 7.13% during 2024 to 6.63% during 2025 mainly due to the aforementioned FOMC rate cuts.  Interest income generated from the securities portfolio increased $8.5 million in 2025 compared to the level earned in 2024.  A rise in the yield on securities from 2.29% during 2024 to 2.86% during 2025 resulted in a $4.5 million increase in interest income, while growth in the average balance of the securities portfolio during 2025 resulted in an increase in interest income of $4.0 million.  Interest income generated from other interest-earning assets was up $0.8 million in 2025 compared to 2024, reflecting the net impact of a $3.7 million increase in interest income resulting from growth in these assets and a $2.9 million decrease in interest income resulting from a decreased yield on these assets.  The growth in average securities and other interest-earning assets during 2025 compared to 2024 primarily reflected the ongoing success of our strategic initiatives to grow local deposits and decrease our loan-to-deposit ratio. 

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Table of Contents

Interest expense is generated from interest-bearing deposits and borrowed funds.  Interest expense decreased $1.3 million during 2025 compared to 2024, totaling $129 million and $130 million in the respective periods.  A decline in the cost of interest-bearing liabilities from 3.38% during 2024 to 3.03% during 2025 resulted in a decrease in interest expense of $17.0 million, while growth in the average balance of these liabilities during 2025 compared to 2024 resulted in an increase in interest expense of $15.7 million.  The reduced average cost of interest-bearing liabilities mainly resulted from decreased costs of money market accounts and time deposits, reflecting the lower interest rate environment that began in September of 2024 in conjunction with the FOMC’s lowering of the targeted federal funds rate.  A change in interest-bearing liability mix, consisting of average higher-cost money market accounts and time deposits representing an increased percentage of average interest-bearing liabilities, negatively impacted the cost of interest-bearing liabilities during 2025 compared to 2024.  The growth in these deposits reflected new deposit relationships, increases in existing deposit relationships, and deposit migration.  During 2025, interest-bearing liabilities averaged $4.27 billion, representing an increase of $415 million, or 10.8%, from the $3.85 billion average during 2024; average interest-bearing deposits were up $471 million, while average borrowings declined $56.4 million.

Growth in the average balance of interest-bearing non-time deposits during 2025 compared to 2024 resulted in a $12.0 million increase in interest expense, while a lower average rate paid on these deposits during 2025 compared to 2024 resulted in an $11.9 million decrease in interest expense.  An increase in the average balance of time deposits during 2025 compared to 2024 resulted in a $5.4 million increase in interest expense, while a reduced average rate paid on these deposits during 2025 compared to 2024 resulted in a $4.4 million decrease in interest expense.  A lower average rate paid on short-term borrowings during 2025 compared to 2024 resulted in a $0.7 million reduction in interest expense, while growth in the average balance of these borrowings during 2025 compared to 2024 equated to a $0.5 million increase in interest expense.  A decrease in the average balance of FHLBI advances during 2025 compared to 2024 resulted in a decline in interest expense of $2.3 million, while a higher average rate paid on these borrowings during 2025 compared to 2024 resulted in an increase in interest expense of $0.7 million.  The $0.5 million decrease in interest expense on other borrowings in 2025 compared to 2024 resulted from a lower average rate paid on these borrowings, which was partially mitigated by a slight increase in the average balance of these borrowings.

Provision for Credit Losses

Provisions for credit losses of $3.2 million and $7.4 million were recorded during 2025 and 2024, respectively.  The provision expense recorded during 2025 primarily reflected a $1.9 million reserve increase related to changes in the economic forecast, a $1.8 million net increase in specific allocations driven by a $5.5 million allocation for a commercial construction loan relationship that was placed on nonaccrual during the second quarter of 2025, and a $1.5 million net increase in qualitative factor allocations.  The impacts of these factors were partially offset by $2.3 million and $1.3 million reductions in the reserve related to faster residential mortgage and consumer loan prepayment speeds and the associated reduced average lives of the portfolios and changes in baseline loss rates, respectively.  The provision expense recorded during 2024 mainly reflected allocations necessitated by net loan growth, individual allocations made for two deteriorated commercial loan relationships, changes in qualitative factors, and an increased allocation stemming from slower prepayments speeds on residential mortgage loans, which were partially offset by lower loan loss rates.  Continued strength in loan quality metrics, including low levels of loan charge-offs, during 2025 and 2024 significantly mitigated the amounts of additional reserves imposed by the previously mentioned factors.

Noninterest Income

Noninterest income totaled $41.6 million during 2025, compared to $40.4 million during 2024.  Noninterest income during 2025 included bank owned life insurance death benefit claims of $1.0 million.  Noninterest income during 2024 included bank owned life insurance death benefit claims and gains on the sales of other real estate owned totaling $0.7 million and $0.4 million, respectively.  Excluding these transactions, noninterest income increased $1.3 million in 2025 compared to 2024.  The higher level of noninterest income primarily reflected increased treasury management fees, mortgage banking income, and payroll services fees.  Growth in treasury management and payroll services fees mainly stemmed from new commercial relationships and successful marketing efforts leading to customers’ expanded use of products and services.  The increase in mortgage banking income primarily resulted from rises in the percentage of loans originated with the intent to sell, which equaled approximately 81% in 2025 compared to approximately 78% in 2024, and total loan originations, which were up approximately 7% in 2025 compared to 2024.  Interest rate swap income declined during 2025 compared to 2024, generally reflecting a lower volume of new swap transactions.

F-17

Table of Contents

Noninterest Expense

Noninterest expense during 2025 was $136 million, compared to $126 million during 2024.  The increase in noninterest expense during 2025 primarily resulted from higher salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, and lower residential mortgage loan deferred salary costs.  Costs associated with the acquisition of Eastern Michigan Financial Corporation, growth in data processing costs, primarily reflecting increased software support costs, and higher allocations to the reserve for unfunded loan commitments, largely stemming from an increase in commercial loan commitments, also contributed to the higher level of noninterest expense.  Lower depreciation expense, mainly reflecting facility expansion and leasehold improvement projects becoming fully depreciated during 2024, positively impacted noninterest expense during 2025.  Contributions to The Mercantile Bank Foundation totaled $1.1 million and $1.7 million during 2025 and 2024, respectively. 

Federal Income Tax Expense

During 2025, we recorded income before federal income tax of $103 million and a federal income tax expense of $14.7 million, compared to income before federal income tax of $98.3 million and a federal income tax expense of $18.7 million during 2024. The $4.0 million decrease in federal income tax expense in 2025 compared to 2024 primarily resulted from the acquisition of transferable energy tax credits and the net benefits from investments in low-income housing and historic tax credit structures, which provided for aggregate tax benefits of $3.5 million and $1.8 million, respectively, the impacts of which were partially offset by a higher level of income before federal income tax.  We recorded net benefits from investments in tax credit structures of $0.2 million during 2024.  The recording of the tax benefits positively impacted our effective tax rate, which equaled 14.2% during 2025, compared to 19.0% during 2024.  The aforementioned bank owned life insurance death benefit claims, substantially all of which were nontaxable, positively impacted the effective tax rates in 2025 and 2024.

CAPITAL RESOURCES

Shareholders’ equity increased $140 million during 2025, totaling $725 million as of December 31, 2025.  Positively impacting shareholders’ equity was net income of $88.8 million, while negatively affecting shareholders’ equity were cash dividends on our common stock totaling $24.0 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 a total of $4.8 million.  Positively impacting shareholders’ equity during 2025 was a $25.8 million decline in the after-tax net unrealized loss on available for sale securities.  Common stock issued in conjunction with the acquisition of Eastern Michigan Financial Corporation totaled $44.9 million.

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.  As of December 31, 2025, Mercantile Bank’s total risk-based capital ratio was 13.8%, compared to 13.9% at December 31, 2024.  Mercantile Bank’s total regulatory capital increased $16.5 million during 2025, primarily reflecting the net impact of net income totaling $98.7 million and cash dividends paid to us aggregating $84.8 million.  Mercantile Bank’s total risk-based capital ratio was also impacted by a $174 million increase in total risk-weighted assets.  As of December 31, 2025, Mercantile Bank’s total regulatory capital equaled $776 million, or approximately $214 million in excess of the amount necessary to attain the 10.0% minimum total risk-based capital ratio, which is among the requirements to be categorized as “well capitalized.”  Eastern Michigan Bank’s total risk-based capital ratio was 19.0%, or approximately $26 million in excess of the “well capitalized” threshold, as of December 31, 2025.

We maintain a stock repurchase program, which is discussed in Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report.

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Table of Contents

LIQUIDITY

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, capital or cash flow from the repayment of loans and securities.  These funds are used to fund loans, meet deposit withdrawals, and operate our company.  Liquidity is essential to our business.  An inability to maintain sufficient funds through deposits, borrowings, the sale of assets, and other sources could have a material adverse effect on our liquidity.  Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.  Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured and called securities, federal funds sold, and interest-earning deposit balances.  Asset and liability management is the process of managing the balance sheet to achieve a mix of earning assets and liabilities that maximizes profitability, while providing adequate liquidity.

To assist in providing needed funds, we have regularly obtained monies from wholesale funding sources.  Wholesale funds, comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $457 million, or approximately 8% of combined deposits and borrowed funds, as of December 31, 2025, compared to $537 million, or about 10% of combined deposits and borrowed funds, as of December 31, 2024.

Sweep accounts increased $111 million during 2025, totaling $232 million as of December 31, 2025.  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.  In addition, we had one customer withdraw a large amount of funds near the end of 2024 that were returned in early 2025.  The average balance of sweep accounts equaled $239 million during 2025, with a high balance of $286 million and a low balance of $115 million.  Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts to overnight interest-bearing repurchase agreements.  Such repurchase agreements are not deposit accounts and are not afforded federal deposit insurance.  All of our sweep accounts are accounted for as secured borrowings.

Information regarding our repurchase agreements as of December 31, 2025 and during 2025 is as follows:

(Dollars in thousands)

Outstanding balance at December 31, 2025

$

232,291

Weighted average interest rate at December 31, 2025

2.80

%

Maximum daily balance twelve months ended December 31, 2025

$

285,679

Average daily balance for twelve months ended December 31, 2025

$

239,089

Weighted average interest rate for twelve months ended December 31, 2025

3.12

%

FHLBI advances declined $60.9 million during 2025, totaling $326 million as of December 31, 2025.  Bullet advances aggregating $20.0 million were obtained during 2025, while bullet advance maturities aggregated $80.0 million.  Payments on amortizing advances totaled $0.9 million during 2025.  Bullet advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing 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.  Advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on certain commercial real estate property loans, and substantially all other assets of Mercantile Bank under a blanket lien arrangement.  Our borrowing line of credit at year-end 2025 totaled $1.08 billion, with remaining availability based on collateral of $777 million.

We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an established unsecured federal funds purchased line of credit; the average balance of these borrowings was less than $0.1 million during 2025.  In contrast, our interest-earning deposit account at the Federal Reserve Bank of Chicago averaged $286 million during 2025.  Both banks have lines of credit through the Discount Window of the Federal Reserve Bank of Chicago.  Based on pledged municipal bonds, we could have borrowed up to an aggregate $199 million as of December 31, 2025.  Except for periodic line testing, we have not utilized these lines and we do not plan to access these line of credit in future periods.

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Table of Contents

The following table reflects, as of December 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

One Year

One to

Three to

Over

(Dollars in thousands)

or Less

Three Years

Five Years

Five Years

Total

Deposits without a stated maturity

$

4,305,095

$

0

$

0

$

0

$

4,305,095

Time deposits

914,764

52,774

11,819

0

979,357

Short-term borrowings

232,291

0

0

0

232,291

Federal Home Loan Bank advances

80,900

191,917

32,087

21,317

326,221

Subordinated debentures

0

0

0

51,015

51,015

Subordinated notes

0

0

0

89,657

89,657

Term note

10,000

20,000

0

0

30,000

Premises and equipment leases

1,191

2,061

811

1,141

5,204

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 December 31, 2025, we had a total of $2.47 billion in unfunded loan commitments and $26.8 million in unfunded standby letters of credit.  Of the total unfunded loan commitments, $2.15 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $296 million were for loan commitments generally expected to be accepted 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 liquidity management.

The following table depicts our loan commitments at the end of the past three years:

(Dollars in thousands)

12/31/25

12/31/24

12/31/23

Commercial unused lines of credit

$

1,755,132

$

1,488,782

$

1,557,429

Unused lines of credit secured by 1-4 family residential properties

135,021

84,298

74,120

Credit card unused lines of credit

204,783

172,273

142,096

Other consumer unused lines of credit

53,124

33,892

50,063

Commitments to make loans

297,730

295,566

270,403

Standby letters of credit

26,813

26,491

19,393

Total

$

2,472,603

$

2,101,302

$

2,113,504

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

MARKET RISK ANALYSIS

Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk and inflation 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 interest-earning assets over the interest paid on 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.

F-20

Table of Contents

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 controls 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 the net interest margin during periods of changing market interest rates.

The following table depicts our GAP position as of December 31, 2025:

Within

Three to

One to

After

Three

Twelve

Five

Five

(Dollars in thousands)

Months

Months

Years

Years

Total

Assets:

Loans (1)

$

3,089,850

$

214,762

$

1,094,499

$

422,777

$

4,821,888

Securities available for sale (2)

15,701

90,983

571,220

424,326

1,102,230

Interest-earning deposits

417,319

1,000

250

0

418,569

Mortgage loans held for sale

17,160

0

0

0

17,160

Allowance for credit losses

0

0

0

0

(58,191

)

Other assets

0

0

0

0

533,563

Total assets

$

3,540,030

$

306,745

$

1,665,969

$

847,103

$

6,835,219

Liabilities:

Interest-bearing deposits

3,254,773

625,420

64,593

0

3,944,786

Short-term borrowings

232,291

0

0

0

232,291

Federal Home Loan Bank advances

30,900

50,000

224,004

21,317

326,221

Term note

2,500

7,500

20,000

0

30,000

Other borrowed money

51,015

0

89,657

0

140,672

Noninterest-bearing deposits

0

0

0

0

1,339,666

Other liabilities

0

0

0

0

96,699

Total liabilities

3,571,479

682,920

398,254

21,317

6,110,335

Shareholders' equity

0

0

0

0

724,884

Total liabilities & shareholders' equity

$

3,571,479

$

682,920

$

398,254

$

21,317

$

6,835,219

Net asset (liability) GAP

$

(31,449

)

$

(376,175

)

$

1,267,715

$

825,786

Cumulative GAP

$

(31,449

)

$

(407,624

)

$

860,091

$

1,685,877

Percent of cumulative GAP to total assets

(0.5

)%

(6.0

)%

12.6

%

24.7

%

(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 December 31, 2025.

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The second interest rate risk measurement used 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 and 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 December 31, 2025, 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 $234 million in net interest income projected using our balance sheet amounts and anticipated replacement rates as of December 31, 2025.  The resulting estimates are generally within our policy parameters established to manage and monitor interest rate risk.

(Dollars in thousands)

Dollar Change

Percent Change

In Net

In Net

Interest Rate Scenario

Interest Income

Interest Income

Interest rates down 400 basis points

$

13,500

5.8

%

Interest rates down 300 basis points

20,000

8.5

Interest rates down 200 basis points

(4,900

)

(2.1

)

Interest rates down 100 basis points

(5,400

)

(2.3

)

Interest rates up 100 basis points

5,900

2.5

Interest rates up 200 basis points

12,100

5.2

Interest rates up 300 basis points

18,400

7.9

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 interest-earning deposits 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.

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