Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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, difficulties and delays in the ongoing integration of Mercantile Bank and Eastern Michigan Bank and achieving anticipated synergies, cost savings and other benefits from the transaction; our ability to obtain timely regulatory approval for the consolidation of Eastern Michigan Bank into Mercantile Bank; our ability to successfully complete and integrate our core processing system conversion, including managing operational disruptions, customer impacts, data conversion issues, and implementation costs; our ability to maintain adequate levels of allowance for credit losses; adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and non-traditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches, and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the Covid-19 pandemic or similar public health threats, and measures implemented to combat them; and other risk factors, including those described in our annual report on Form 10-K for the year ended December 31, 2025. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

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 ($0.1 million and $0.4 million during the second quarter and first six months of 2026, respectively) , and (ii) the previously announced core and digital banking system conversion ($0.5 million and $3.5 million during the second quarter and first six months of 2026, respectively). These non-GAAP financial measures are identified in this report where they appear. We believe that presenting these non-GAAP financial measures provides investors, analysts, and other interested parties with meaningful supplementary information to assess Mercantile'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 June 30, 2026, and December 31, 2025, and the results of operations for the three and six months ended June 30, 2026, and 2025. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to "us," "we," "our" or "the Company" include Mercantile Bank Corporation and its consolidated subsidiaries referred to above.

Critical Accounting Policies

Accounting principles generally accepted in the United States of America ("GAAP") are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting estimates, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2025 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

Allowance for Credit Losses ("allowance"): The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on historical credit loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Credit losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance, while recoveries of loans previously charged-off are added to the allowance.

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

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from servicing each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

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

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

Financial Overview

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

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

Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan and previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $26.4 million, or $1.53 per diluted share, for the second quarter of 2026, and $51.7 million, or $2.99 per diluted share, for the first six months of 2026. Earnings increased $0.14 per diluted share, or approximately 10%, in the second quarter of 2026 compared to the second quarter of 2025, and $0.39 per diluted share, or approximately 15%, during the first six months of 2026 compared to the first six months of 2025. We believe using these non-GAAP measurements reflects our core earnings performance and provides for more accurate current-period versus prior-period comparisons.

Commercial loans increased $132 million during the first six months of 2026, providing for an annualized growth rate of approximately 7%. As had been the case during most of 2025, commercial loan growth during the first six months of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships, totaled $121 million and $180 million during the second and first quarters of 2026, respectively, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter. As a percentage of total commercial loans, commercial and industrial and owner-occupied commercial real estate ("CRE") loans equaled 57.8% as of June 30, 2026, compared to 55.0% as of December 31, 2025. The commercial loan pipeline remains strong, and as of June 30, 2026, we had $236 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $40.3 million during the first six months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $287 million during the first six months of 2026, reflecting an increase of over 18% compared to the first six months of 2025. Approximately 74% of the residential mortgage loans originated during the first six months of 2026 were with the intent to sell, compared to approximately 80% during the first six months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the relatively high percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and sold has had a positive impact on mortgage banking income.

The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $5.8 million, or 0.1% of total loans, as of June 30, 2026. Accruing loans past due 30 to 89 days remain very low with no foreclosed properties at quarter-end. Gross loan charge-offs were nominal during the first six months of 2026, while recoveries of prior period loan charge-offs aggregated $0.9 million, providing for a net loan recovery of $0.9 million.

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago ("FRB Chicago"), averaged $391 million during the first six months of 2026, compared to $230 million during the first six months of 2025. The higher average balance primarily reflects strong deposit growth during the first six months of 2026 and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth.

Total deposits increased $11.9 million during the first six months of 2026, consisting of a $122 million increase in local deposits and $110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and customary customers' tax and bonus payments and partnership distributions during that time period. Securities sold under agreements to repurchase ("sweep accounts") decreased $14.8 million and Federal Home Loan Bank of Indianapolis ("FHLBI") advances declined $20.9 million during the first six months of 2026. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $325 million, or approximately 6% of total funds, as of June 30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Net interest income grew $7.8 million and $15.1 million during the second quarter and first six months of 2026, respectively, compared to the prior-year time periods, reflecting the combined impact of $4.7 million and $9.8 million increases in interest income and $3.1 million and $5.3 million decreases in interest expense, during the respective time periods. Our net interest margin during the second quarter of 2026 was eleven basis points higher than during the second quarter of 2025 and was eight basis points higher during the first six months of 2026 compared to the first six months of 2025. Although our yield on earning assets declined during the 2026 time periods compared to the respective 2025 time periods, largely reflecting the aggregate 75 basis point reduction in the federal funds rate during the last four months of 2025, our cost of funds declined more primarily due to the decline in the interest rate environment and the onboarding of Eastern Michigan Bank's relative low-cost deposit base. Also contributing to higher net interest income was growth in earning assets. Average earning assets during the first six months of 2026 totaled $6.42 billion, compared to $5.72 billion during the first six months of 2025. Eastern Michigan Bank's net interest income totaled $5.9 million and $11.7 million during the second quarter and first six months of 2026, respectively.

We recorded negative provisions for credit losses of $1.8 million and $3.6 million during the second quarter and first six months of 2026, respectively, compared to positive provisions for credit losses of $1.6 million and $3.7 million during the respective time periods in 2025. We eliminated a $2.7 million specific reserve and recorded a $0.2 million recovery associated with the resolution of a nonperforming commercial construction loan during the second quarter of 2026. The recording of net loan recoveries and sustained strength in loan quality metrics positively impacted necessary provision levels and helped to mitigate required provision levels from loan growth.

Noninterest income totaled $11.5 million and $23.2 million during the second quarter and first six months of 2026, respectively, compared to $11.5 million and $20.2 million during the respective time periods in 2025. We recorded strong growth in treasury management fees, card income, and payroll service fees, but lower mortgage banking and interest rate swap income. Eastern Michigan Bank's noninterest income totaled $0.6 million and $1.1 million during the second quarter and first six months of 2026, respectively. We also recorded $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits during the first quarter of 2026.

Noninterest expense totaled $39.4 million and $81.5 million during the second quarter and first six months of 2026, respectively, compared to $33.4 million and $64.5 million during the respective time periods in 2025. Excluding one-time costs aggregating related to the core and digital banking system conversions and the acquisition of Eastern Michigan, noninterest expense increased $5.4 million and $13.1 million during the second quarter and first six months of 2026, respectively, compared to the respective time periods in 2025. Eastern Michigan Bank's noninterest expense totaled $4.0 million and $8.0 million during the second quarter and first six months of 2026, respectively. Increases in noninterest expenses during the two periods largely reflect higher salary and benefit costs and the impact of a larger balance sheet and branch network.

Federal income tax expense totaled $5.3 million and $9.9 million during the second quarter and first six months of 2026, respectively, compared to $3.3 million and $7.9 million during the respective time periods in 2025. The increases during the 2026 time periods largely reflect growth in income before federal income tax expense. The effective tax rate was 16.9% in both the second quarter and first six months of 2026, compared to 12.9% and 15.7% during the respective time periods in 2025. The higher effective tax rate in the 2026 time periods primarily reflects lower tax benefits from the acquisition of transferrable energy tax credits due to lower activity levels.

Financial Condition

Total assets decreased $15.7 million during the first six months of 2026, totaling $6.82 billion as of June 30, 2026. Total loans increased $93.7 million and securities available for sale grew $23.3 million, while interest-earning deposit balances declined $147 million during the first six months of 2026. Total deposits increased $11.9 million, while sweep accounts declined $14.8 million and FHLBI advances were down $20.9 million during the first six months of 2026.

Our loan portfolio has historically been primarily comprised of commercial loans. Commercial loans totaled $4.05 billion, or 82.4% of total loans, as of June 30, 2026. Commercial loans increased $132 million during the first six months of 2026, providing for an annualized growth rate of approximately 7%. As had been the case during most of 2025, commercial loan growth during the first six months of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships, totaled $121 million and $180 million during the second and first quarters of 2026, respectively, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter. As a percentage of total commercial loans, commercial and industrial and owner-occupied CRE loans equaled 57.8% as of June 30, 2026, compared to 55.0% as of December 31, 2025.

Commercial and industrial loans increased $163 million, owner-occupied CRE loans were up $25.0 million and land development and construction loans expanded by $2.0 million, while multi-family and residential rental property loans declined $39.0 million and non-owner occupied CRE loans were down $18.8 million during the first six months of 2026.

Availability on commercial construction and development loans that are in the construction phase totaled $236 million as of June 30, 2026, with most of the funds expected to be drawn over the next 12 to 18 months. Our current pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including $234 million in committed and accepted new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial bankers also report additional opportunities they are currently discussing with existing borrowers and potential new customers. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit averaged approximately 41% during the first six months of 2026, compared to approximately 44% during all of 2025.

Residential mortgage loans totaled $751 million, or 15.3% of total loans, as of June 30, 2026. Residential mortgage loans decreased $40.3 million during the first six months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $287 million during the first six months of 2026, reflecting an increase of over 18% compared to the first six months of 2025. Approximately 74% of the residential mortgage loans originated during the first six months of 2026 were with the intent to sell, compared to approximately 80% during the first six months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the relatively high percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and sold has had a positive impact on mortgage banking income.

Other consumer-related loans totaled $115 million, or 2.3% of total loans, as of June 30, 2026. We expect this loan portfolio segment to remain relatively stable in dollar amount but decline as a percentage of total loans in future periods as the commercial loan segment grows. Home equity lines of credit comprised approximately 79% of other consumer-related loans as of June 30, 2026.

Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are 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 could occur quickly because of changing economic conditions or other factors. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require modification in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on nonperforming loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust external 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 $5.8 million, or 0.1% of total loans, as of June 30, 2026. The volume of nonperforming loans has remained under 0.3% of total loans since year-end 2015 and has averaged 0.1% over the past seven years. Accruing loans past due 30 to 89 days remain very low with no foreclosed properties at quarter-end. Gross loan charge-offs were nominal during the first six months of 2026, while recoveries of prior period loan charge-offs aggregated $0.9 million, providing for a net loan recovery of $0.9 million. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential mortgage loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors' rights in order to preserve our collateral position.

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

The allowance equaled $55.4 million, or 1.13% of total loans and 955% of nonperforming loans, as of June 30, 2026. The allowance was comprised of $54.5 million in general reserves relating to performing loans and $0.9 million in specific reserves on other loans, primarily nonperforming loans, as of June 30, 2026. Loans with an aggregate carrying value of $0.6 million as of June 30, 2026, had been subject to previous partial charge-offs aggregating $0.2 million over the past several years. There were no specific reserves allocated to loans that had been subject to a previous partial charge-off as of June 30, 2026.

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

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

(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				Annualized Net Charge-Offs to Average Loans
Commercial:
Commercial and industrial		$	13,773			$	1,537,029				0.90	%		$	942				0.06	%			1,462.10	%		$	(365	)			(0.05	)%
Vacant land, land development and residential construction			546				119,387				0.46				210				0.18				260.00				(49	)			(0.12	)
Real estate - owner occupied			8,048				803,883				1.00				743				0.09				1,083.18				(14	)			(0.01	)
Real estate - non-owner occupied			12,404				1,091,844				1.14				0				0			NA					(228	)			(0.05	)
Real estate - multi-family and residential rental			5,057				498,253				1.01				0				0			NA					(8	)			(0.01	)
Total commercial			39,828				4,050,396				0.98				1,895				0.05				2,101.74				(664	)			(0.03	)
Retail:
1-4 family mortgages			12,699				750,526				1.69				3,811				0.51				333.22				(168	)			(0.04	)
Other consumer			2,806				114,631				2.45				97				0.08				2,892.78				(18	)			(0.04	)
Total retail			15,505				865,157				1.79				3,908				0.45				396.75				(186	)			(0.04	)
Unallocated			108				NA				NA				NA				NA				NA				NA				NA
Total		$	55,441			$	4,915,553				1.13	%		$	5,803				0.12	%			955.39	%		$	(850	)			(0.04	)%

Securities available for sale increased $23.3 million during the first six months of 2026, totaling $1.13 billion as of June 30, 2026. There were no purchases or maturities of U.S. Treasury securities during the first six months of 2026. Purchases of U.S. Government agency bonds during the first six months of 2026 aggregated $68.1 million, while proceeds from maturities totaled $18.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first six months of 2026, while proceeds from principal paydowns aggregated $9.3 million. Purchases of municipal bonds totaled $13.2 million during the first six months of 2026, while proceeds from maturities and calls aggregated $17.4 million. As of June 30, 2026, the portfolio was primarily comprised of U.S. Treasury and U.S. Government agency bonds (66%), municipal bonds (24%), U.S. Government agency guaranteed mortgage-backed securities (7%) and other bonds (3%). 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 totaled $1.13 billion as of June 30, 2026, including a net unrealized loss of $40.5 million. The net unrealized loss equaled $30.4 million as of December 31, 2025. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect any upcoming purchases to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at the current level of approximately 16% of total assets.

Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third-party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines.

FHLBI stock totaled $22.1 million as of June 30, 2026, unchanged from December 31, 2025. Our investment in FHLBI stock is necessary to engage in the FHLBI's advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

Interest-earning deposits, a vast majority of which are comprised of funds on deposit with the Federal Reserve Bank of Chicago, totaled $267 million as of June 30, 2026. Interest-earning deposits averaged $391 million during the first six months of 2026, compared to $230 million during the first six months of 2025. The higher average balance primarily reflects strong local deposit growth throughout 2025 and into 2026, and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth. Strong commercial loan growth and out-of-area deposit maturities during the second quarter of 2026 were largely funded by monies on deposit with the Federal Reserve Bank of Chicago, resulting in a June 30, 2026, balance that was lower than the average during the first six months of 2026.

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

Total deposits increased $11.9 million during the first six months of 2026, consisting of a $122 million increase in local deposits and $110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and customary customers' tax and bonus payments and partnership distributions during that time period. Noninterest-bearing checking accounts increased $80.9 million, money market accounts were up $41.6 million, and savings deposits grew $11.2 million, while interest-bearing checking accounts decreased $10.6 million and local time deposits declined $0.8 million. The deposit balance increases reflect new deposit account relationships and additional funds from existing deposit customers, largely from business and public units.

Uninsured deposits totaled approximately $3.01 billion, or about 57% of total deposits, as of June 30, 2026, compared to approximately $2.91 billion, or about 54% of total deposits, as of December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions we use for regulatory reporting requirements. Our level of uninsured deposits, which has remained relatively steady as a percentage of total deposits, is generally higher than banking industry averages given our commercial lending focus.

Sweep accounts decreased $14.8 million during the first six months of 2026, totaling $217 million as of June 30, 2026. The aggregate balance of this funding type can be subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that several of the customers maintain. The average balance of sweep accounts equaled $223 million during the first six months of 2026, with a high daily balance of $257 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

FHLBI advances declined $20.9 million during the first six months of 2026, totaling $305 million as of June 30, 2026. Bullet advances aggregating $30.0 million were obtained during the first six months of 2026, while bullet advance maturities aggregated $50.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $847 million, as of June 30, 2026.

Shareholders' equity increased $30.2 million during the first six months of 2026, equaling $755 million as of June 30, 2026. Positively impacting shareholders' equity during the first six months of 2026 was net income of $48.6 million, which was partially offset by the payment of cash dividends totaling $13.3 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders' equity by $2.9 million. An $8.0 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders' equity during the first six months of 2026.

Liquidity

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured, and called securities, federal funds sold and interest-earning deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximize profitability, while providing adequate liquidity.

To assist in providing needed funds and managing interest rate risk, we periodically obtain monies from wholesale funding sources. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $325 million, or approximately 6% of total funds, as of June 30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025.

Sweep accounts decreased $14.8 million during the first six months of 2026, totaling $217 million as of June 30, 2026. The aggregate balance of this funding type can be subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that several of the customers maintain. The average balance of sweep accounts equaled $223 million during the first six months of 2026, with a high daily balance of $257 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All our repurchase agreements are accounted for as secured borrowings.

Information regarding our repurchase agreements as of June 30, 2026, and during the first six months of 2026 is as follows:

(Dollars in thousands)
Outstanding balance at June 30, 2026		$	217,470
Weighted average interest rate at June 30, 2026			2.68	%
Maximum daily balance six months ended June 30, 2026		$	257,040
Average daily balance for six months ended June 30, 2026		$	222,847
Weighted average interest rate for six months ended June 30, 2026			2.68	%

FHLBI advances declined $20.9 million during the first six months of 2026, totaling $305 million as of June 30, 2026. Bullet advances aggregating $30.0 million were obtained during the first six months of 2026, while bullet advance maturities aggregated $50.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $847 million, as of June 30, 2026.

We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an unsecured federal funds purchased line of credit. Our average balance was nominal during the first six months of 2026. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $369 million during the first six months of 2026. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $149 million as of June 30, 2026. We did not utilize this line of credit during the first six months of 2026 or at any time during the previous 17 fiscal years, and do not plan to access this line of credit in future periods.

The following table reflects, as of June 30, 2026, 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		$	4,428,273			$	0			$	0			$	0			$	4,428,273
Time deposits			814,469				42,323				11,323				0				868,115
Short-term borrowings			217,470				0				0				0				217,470
Federal Home Loan Bank advances			100,938				132,000				52,177				20,207				305,322
Subordinated debentures			0				0				0				51,358				51,358
Subordinated notes			0				0				0				89,829				89,829
Term note			10,000				15,000				0				0				25,000
Other borrowed money			0				0				0				1,576				1,576
Premises and equipment leases			1,160				1,935				401				1,109				4,605

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

(Dollars in thousands)		June 30, 2026				December 31, 2025
Up to three months		$	152,407			$	88,138
Three months to six months			112,765				103,213
Six months to twelve months			80,871				108,745
Over twelve months			8,015				74,395
Total certificates of deposit		$	354,058			$	374,491

In addition to normal loan funding and deposit flow, we must maintain liquidity to meet the demands of certain unfunded loan commitments and standby letters of credit. As of June 30, 2026, we had a total of $2.23 billion in unfunded loan commitments and $34.1 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $2.00 billion were commitments available as lines of credit to be drawn at any time as customers' cash needs vary, and $234 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels and include such data in our overall liquidity management.

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. We have developed contingency funding plans that provide a framework for meeting liquidity disruptions.

Capital Resources

Shareholders' equity increased $30.2 million during the first six months of 2026, equaling $755 million as of June 30, 2026. Positively impacting shareholders' equity during the first six months of 2026 was net income of $48.6 million, which was partially offset by the payment of cash dividends totaling $13.3 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders' equity by $2.9 million. An $8.0 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders' equity during the first six months of 2026.

We and our banks are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. Mercantile Bank's total risk-based capital ratio was 13.5% as of June 30, 2026, compared to 13.8% as of December 31, 2025. Mercantile Bank's total regulatory capital increased $8.7 million during the first six months of 2026, in large part reflecting net income totaling $50.6 million, which was partially offset by cash dividends paid to us aggregating $39.0 million. As of June 30, 2026, Mercantile Bank's total regulatory capital equaled $784 million, or $205 million in excess of the 10.0% minimum that is among the requirements to be categorized as "well capitalized." Eastern Michigan Bank's total risk-based capital ratio was 23.1% as of June 30, 2026, compared to 20.2% as of December 31, 2025. Eastern Michigan Bank's total regulatory capital increased $5.3 million during the first six months of 2026, in large part reflecting net income totaling $4.0 million and a $2.4 million reduction in the ineligible core deposit intangible balance due to amortization during the first six months of 2026. As of June 30, 2026, Eastern Michigan Bank's total regulatory capital equaled $64.2 million, or $36.3 million in excess of the 10.0% minimum that is among the requirements to be categorized as "well capitalized."

Our and our banks' capital ratios as of June 30, 2026, and December 31, 2025, are disclosed in Note 14 of the Notes to Consolidated Financial Statements.

Results of Operations

We recorded net income of $25.9 million, or $1.50 per basic and diluted share, for the second quarter of 2026, compared with net income of $22.6 million, or $1.39 per basic and diluted share, for the second quarter of 2025. We recorded net income of $48.6 million, or $2.82 per basic and diluted share, for the first six months of 2026, compared with net income of $42.2 million, or $2.60 per basic and diluted share, for the first six months of 2025. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan Financial Corporation and the previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $26.4 million, or $1.53 per diluted share, for the second quarter of 2026, and $51.7 million, or $2.99 per diluted share, for the first six months of 2026. Using these non-GAAP measures, earnings per diluted share increased $0.14, or 10.1%, in the second quarter of 2026, and $0.39, or 15.0%, in the first six months of 2026, compared to the respective 2025 periods.

The increases in net income during the 2026 periods compared to the respective 2025 periods primarily reflected growth in net interest income and lower provisions for credit losses, which more than offset increased levels of noninterest expense. Higher levels of noninterest income, mainly reflecting growth in treasury management fees, bank owned life insurance income, and payroll services fees, also contributed to the increases in net income in the 2026 periods. Net interest income increased as earning asset expansion and decreases in the costs of funds outweighed lower yields on earning assets and growth in interest-bearing liabilities. The negative provision expense recorded during the second quarter of 2026 primarily reflected the elimination of a $2.7 million specific allocation associated with the resolution of a nonperforming commercial construction loan, while the negative provision expense recorded during the first six months of 2026 mainly reflected a decline in specific allocations and changes in loan mix. Excluding the previously mentioned one-time core and digital banking system conversion and acquisition costs, the increases in noninterest expense during the 2026 periods primarily reflected higher salary and benefit costs, cost inflation, and increased costs of a larger balance sheet and branch network.

Interest income during the second quarter of 2026 was $86.7 million, an increase of $4.7 million, or 5.8%, from the $82.0 million earned during the second quarter of 2025. The increase resulted from growth in average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $6.43 billion during the second quarter of 2026, up $699 million, or 12.2%, from the level of $5.73 billion during the prior-year second quarter; average securities increased $325 million, average loans were up $196 million, and average other interest-earning assets grew $178 million. The yield on average earning assets was 5.42% during the current-year second quarter, a decline from 5.75% during the respective 2025 period. The decreased yield largely stemmed from a lower yield on loans and a change in earning asset mix, which more than offset an improved yield on securities resulting from the reinvestment of relatively low-yielding bonds and portfolio expansion activities, along with the positive impact resulting from the addition of Eastern Michigan Bank's securities portfolio. The yield on loans was 6.01% during the second quarter of 2026, down from 6.29% during the second quarter of 2025, mainly due to reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee ("FOMC") lowering the targeted federal funds rate. The FOMC decreased the targeted federal funds rate by 25 basis points in each of September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 77% of average total commercial loans. Reflecting a strategic initiative to lower the loan-to-deposit ratio and the impact of Eastern Michigan Bank's liquid balance sheet, relatively higher-yielding loans represented a decreased percentage of earning assets and relatively lower-yielding securities accounted for an increased percentage of earning assets in the second quarter of 2026 compared to the second quarter of 2025. The yield on securities equaled 3.36% during the second quarter of 2026, up from 2.82% during the prior-year second quarter. The yield on other interest-earning assets, primarily consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.91% during the second quarter of 2025 to 4.04% during the respective 2026 period, reflecting the decreased interest rate environment.

Interest income during the first six months of 2026 was $172 million, an increase of $9.8 million, or 6.1%, from the $162 million earned during the first six months of 2025. The increase resulted from a higher level of average earning assets, which more than offset a reduced yield on average earning assets. Average earning assets equaled $6.42 billion during the first six months of 2026, up $709 million, or 12.4%, from the level of $5.72 billion during the respective 2025 period; average securities grew $341 million, average loans increased $198 million, and average other interest-earning assets were up $170 million. The yield on average earning assets was 5.42% during the first six months of 2026, a decline from 5.75% during the first six months of 2025. The lower yield primarily resulted from a reduced yield on loans and a change in earning asset mix, which more than offset a higher yield on securities resulting from the reinvestment of relatively low-yielding bonds and portfolio expansion activities, along with the positive impact stemming from the addition of Eastern Michigan Bank's securities portfolio. The yield on loans was 6.02% during the first six months of 2026, down from 6.29% during the first six months of 2025, mainly due to lower interest rates on variable-rate commercial loans resulting from the FOMC decreasing the targeted federal funds rate. The FOMC reduced the targeted federal funds rate by 25 basis points in each of September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 77% of average total commercial loans. Exhibiting a strategic plan to lower the loan-to-deposit ratio and the impact of Eastern Michigan Bank's liquid balance sheet, relatively higher-yielding loans represented a decreased percentage of earning assets and relatively lower-yielding securities accounted for an increased percentage of earning assets in the first six months of 2026 compared to the respective 2025 period. The yield on securities equaled 3.31% during the first six months of 2026, up from 2.78% during the first six months of 2025. The yield on other interest-earning assets, largely consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.85% during the first six months of 2025 to 4.02% during the first six months of 2026, reflecting the decreased interest rate environment.

Interest expense during the second quarter of 2026 was $29.4 million, a decrease of $3.1 million, or 9.4%, from the $32.5 million expensed during the second quarter of 2025. The lower level of interest expense resulted from a decline in the weighted average cost of average interest-bearing liabilities, which more than offset growth in the average balance of these funds. The weighted average cost of average interest-bearing liabilities declined from 3.09% during the second quarter of 2025 to 2.53% during the second quarter of 2026 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment. An increase in low-cost deposit products as a percentage of total funding sources, primarily stemming from the addition of Eastern Michigan Bank's deposit base, and a reduction in brokered deposits also contributed to the reduced cost of funds. The latter reflects a strategy to refine the deposit base whereby the reliance on the brokered deposit market and other higher-priced deposit-only relationships is reduced. Average interest-bearing liabilities totaled $4.66 billion during the second quarter of 2026, compared to $4.21 billion during the prior-year second quarter, representing an increase of $450 million, or 10.7%.

Interest expense during the first six months of 2026 was $59.0 million, a decrease of $5.3 million, or 8.3%, from the $64.3 million expensed during the first six months of 2025. The decreased interest expense reflected a reduction in the weighted average cost of average interest-bearing liabilities, which more than offset growth in the average balance of these funds. The weighted average cost of average interest-bearing liabilities decreased from 3.09% during the first six months of 2025 to 2.54% during the first six months of 2026 mainly due to reduced rates paid on money market accounts and time deposits, reflecting the lower interest rate environment. An increase in low-cost deposit products as a percentage of total funding sources, largely stemming from the onboarding of Eastern Michigan Bank's deposit base, and a decrease in brokered deposits also contributed to the reduced cost of funds. The latter reflects the previously mentioned strategy to reduce reliance on the brokered deposit market and other higher-priced deposit-only relationships. Average interest-bearing liabilities totaled $4.69 billion during the first six months of 2026, compared to $4.20 billion during the respective 2025 period, representing an increase of $490 million, or 11.7%.

Net interest income during the second quarter of 2026 was $57.3 million, an increase of $7.8 million, or 15.7%, from the $49.5 million earned during the respective 2025 period. The increase reflected growth in earning assets and an improved net interest margin. The net interest margin was 3.59% in the current-year second quarter, up from 3.48% in the second quarter of 2025 due to a decline in the cost of funds, which more than offset a decreased yield on average earning assets. The cost of funds equaled 1.83% in the second quarter of 2026, down from 2.27% in the prior-year second quarter primarily due to lower costs of money market accounts and time deposits, reflecting the decreasing interest rate environment, and an increase in low-cost deposits as a percentage of total funding sources. The lower yield on average earning assets mainly resulted from a decreased yield on commercial loans, largely reflecting the impact of the previously mentioned FOMC rate cuts, and a change in earning asset mix resulting from the aforementioned strategic initiative to lower the loan-to-deposit ratio.

Net interest income during the first six months of 2026 was $113 million, an increase of $15.1 million, or 15.4%, from the $98.0 million earned during the first six months of 2025. The increase reflected earning asset expansion and a higher net interest margin. The net interest margin was 3.57% in the first six months of 2026, up from 3.48% in the respective 2025 period due to a decreased cost of funds, which more than offset a lower yield on average earning assets. The cost of funds equaled 1.85% in the first six months of 2026, down from 2.27% in the first six months of 2025 primarily due to decreased costs of money market accounts and time deposits, reflecting the lower interest rate environment, and an increase in low-cost deposits as a percentage of total funding sources. The reduced yield on average earning assets mainly stemmed from a decreased yield on commercial loans, primarily reflecting the impact of the previously mentioned FOMC rate cuts, and a change in earning asset mix resulting from the aforementioned strategic plan to lower the loan-to-deposit ratio.

The following tables set forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflect the average yield on assets and average cost of liabilities for the second quarters and first six months of 2026 and 2025. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the period presented. Tax-exempt securities interest income and yield for the second quarters and first six months of 2026 and 2025 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $300,000 and $255,000 in the second quarters of 2026 and 2025, respectively, and $600,000 and $510,000 in the first six months of 2026 and 2025, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of approximately two basis points for each of the 2026 and 2025 periods.

		Quarters ended June 30,
		2026												2025
		Average								Average				Average								Average
		Balance				Interest				Rate				Balance				Interest				Rate
		(dollars in thousands)
ASSETS
Loans		$	4,891,868			$	73,293				6.01	%		$	4,695,367			$	73,614				6.29	%
Investment securities			1,128,063				9,474				3.36				803,264				5,669				2.82
Other interest-earning assets			413,729				4,229				4.04				235,965				2,930				4.91
Total interest - earning assets			6,433,660				86,996				5.42				5,734,596				82,213				5.75
Allowance for credit losses			(57,835	)											(57,801	)
Other assets			475,240												385,024
Total assets		$	6,851,065											$	6,061,819
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits		$	3,956,008			$	23,140				2.35	%		$	3,463,066			$	25,725				2.98	%
Short-term borrowings			223,699				1,488				2.67				242,605				1,919				3.17
Federal Home Loan Bank advances			313,673				2,595				3.27				365,672				2,897				3.13
Other borrowings			169,708				2,215				5.16				141,534				1,938				5.42
Total interest-bearing liabilities			4,663,088				29,438				2.53				4,212,877				32,479				3.09
Noninterest-bearing deposits			1,376,108												1,152,631
Other liabilities			67,676												80,082
Shareholders' equity			744,193												616,229
Total liabilities and shareholders' equity		$	6,851,065											$	6,061,819
Net interest income						$	57,558											$	49,734
Net interest rate spread											2.89	%											2.66	%
Net interest spread on average assets											3.37	%											3.29	%
Net interest margin on earning assets											3.59	%											3.48	%

		Six months ended June 30,
		2026												2025
		Average								Average				Average								Average
		Balance				Interest				Rate				Balance				Interest				Rate
		(dollars in thousands)
ASSETS
Loans		$	4,860,126			$	145,190				6.02	%		$	4,662,415			$	145,344				6.29	%
Investment securities			1,124,048				18,623				3.31				783,291				10,882				2.78
Other interest-earning assets			440,710				8,909				4.02				269,956				6,581				4.85
Total interest - earning assets			6,424,884				172,722				5.42				5,715,662				162,807				5.75
Allowance for credit losses			(58,301	)											(56,735	)
Other assets			477,607												381,182
Total assets		$	6,844,190											$	6,040,109
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits		$	3,977,456			$	46,386				2.35	%		$	3,452,840			$	50,918				2.97	%
Short-term borrowings			222,851				2,967				2.68				232,005				3,682				3.20
Federal Home Loan Bank advances			315,990				5,151				3.24				370,912				5,795				3.11
Other borrowings			170,804				4,459				5.19				141,333				3,875				5.45
Total interest-bearing liabilities			4,687,101				58,963				2.54				4,197,090				64,270				3.09
Noninterest-bearing deposits			1,347,481												1,149,359
Other liabilities			70,799												88,412
Shareholders' equity			738,809												605,248
Total liabilities and shareholders' equity		$	6,844,190											$	6,040,109
Net interest income						$	113,759											$	98,537
Net interest rate spread											2.88	%											2.66	%
Net interest spread on average assets											3.35	%											3.29	%
Net interest margin on earning assets											3.57	%											3.48	%

We recorded negative provisions for credit losses of $1.8 million and $3.6 million during the second quarter and first six months of 2026, respectively, and positive provisions for credit losses of $1.6 million and $3.7 million during the respective 2025 periods. The negative provision expense recorded during the current-year second quarter mainly reflected the elimination of a $2.7 million specific allocation associated with the resolution of a nonperforming commercial construction loan, which was partially offset by changes in the economic forecast, allocations necessitated by net loan growth, and an increase in qualitative factor allocations. The negative provision expense recorded during the first six months of 2026 primarily reflected a decline in specific allocations and changes in loan mix, which more than offset allocations necessitated by changes in qualitative factors and net loan growth. The positive provision expense recorded during the second quarter of 2025 mainly reflected an individual allocation of $2.5 million associated with a commercial construction loan relationship that was placed on nonaccrual during the quarter and allocations of $0.7 million necessitated by net loan growth, which more than offset an aggregate reduction of $1.0 million in individual allocations related to nonperforming loan relationships resulting from full payoffs and partial paydowns. The positive provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations driven by the aforementioned commercial construction loan that was placed on nonaccrual during the second quarter, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast.

Noninterest income totaled $11.5 million during the second quarter of 2026, up slightly from the level recorded during the prior-year second quarter. Noninterest income totaled $23.2 million during the first six months of 2026, up $3.0 million, or 15.0%, from $20.2 million during the first six months of 2025. The increases in noninterest income in the 2026 periods mainly reflected growth in treasury management fees, bank owned life insurance income, and payroll services fees. The increases in treasury management and payroll services fees largely resulted from new commercial customer acquisitions and customers' expanded use of products and services, as well as a modified fee schedule. Reductions in mortgage banking income, primarily stemming from changes in the quarter-end fair values of commitments to originate salable residential mortgage loans, accelerated mortgage servicing rights amortization, and lower percentages of loans originated with the intent to sell, and interest rate swap income, mainly reflecting lower levels of new swap transactions, negatively impacted noninterest income in the 2026 periods. Noninterest income during the first six months of 2026 included $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits. Eastern Michigan Bank generated $0.6 million and $1.1 million in noninterest income during the second quarter and first six months of 2026, respectively, primarily consisting of deposit service charges and bank owned life insurance income.

Noninterest expense totaled $39.4 million during the second quarter of 2026, compared to $33.4 million during the prior-year second quarter. Noninterest expense totaled $81.5 million during the first six months of 2026, compared to $64.5 million during the first six months of 2025. Excluding non-recurring costs aggregating $0.5 million and $3.5 million related to the core and digital banking system conversion and $0.1 million and $0.4 million associated with the acquisition of Eastern Michigan Financial Corporation during the second quarter and first six months of 2026, respectively, noninterest expense increased $5.4 million, or 16.1%, during the current-year second quarter and $13.1 million, or 20.4%, during the first six months of 2026 compared to the respective 2025 periods using these non-GAAP measurements. The increases in noninterest expense mainly resulted from higher salary and benefit costs, largely reflecting annual merit pay increases and market adjustments and increased bonus accruals, residential mortgage lender commissions and incentives, health insurance costs, payroll taxes, stock-based compensation, and retirement costs. The remaining rises in noninterest expense primarily reflected cost inflation and the increased costs of a larger balance sheet and branch network. A $1.4 million decrease in allocations to the reserve for unfunded loan commitments, mainly reflecting a lower level of commercial loan commitments that have been accepted by customers, positively impacted noninterest expense during the second quarter of 2026. Eastern Michigan Bank's noninterest expense totaled $4.0 million and $8.0 million during the second quarter and first six months of 2026, respectively, including salary and benefit costs of $1.8 million and $3.5 million, core deposit intangible asset amortization of $0.9 million and $1.7 million, and data processing costs of $0.4 million and $0.8 million during the respective periods.

During the second quarter of 2026, we recorded income before federal income tax of $31.2 million and federal income tax expense of $5.3 million. During the second quarter of 2025, we recorded income before federal income tax of $26.0 million and federal income tax expense of $3.4 million. During the first six months of 2026, we recorded income before federal income tax of $58.5 million and federal income tax expense of $9.9 million. During the first six months of 2025, we recorded income before federal income tax of $50.0 million and federal income tax expense of $7.8 million. The increases in federal income tax expense during the 2026 periods primarily resulted from higher levels of income before federal income tax. The acquisition of transferable energy tax credits and the net benefits from low-income housing and historic tax credit investments provided for aggregate tax benefits of $0.8 million and $1.8 million during the second quarters of 2026 and 2025, respectively, and $1.6 million and $2.0 million during the first six months of 2026 and 2025, respectively. The recording of the tax benefits positively impacted our effective tax rate, which equaled 16.9% and 12.9% during the second quarters of 2026 and 2025, respectively, and 16.8% and 15.7% during the first six months of 2026 and 2025, respectively.