Mercantile Bank Corporation Stock

Good morning, and welcome to the Mercantile Bank Corporation 2026 Second Quarter Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us. Today, we will cover the company's financial results for the second quarter of 2026. The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer as well as Chuck Christmas, Executive Vice President and Chief Financial Officer. Our agenda will begin with prepared remarks by both Ray and Chuck and will include references to our presentation covering this quarter's results.

You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com. After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results will differ materially -- could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission's filings. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin. Ray?

Thank you, Nichole. Our results for the second quarter of 2026 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of the purchase of Eastern Michigan on December 31,2025, represents execution of our strategic objectives around deposit growth, loan growth and margin stability, paired with strong asset quality and overall financial performance. We continue to demonstrate top quartile ROA performance relative to our peers built around the following traits: a strong and durable net interest margin. Over the last 5 quarters, the SOFR 90-day average rate has dropped 71 basis points, while our margin increased by 11 basis points to 3.59%. This illustrates effective execution of our strategic objective to maintain a steady margin via match funding of our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large portion of floating rate assets.

Very strong asset quality. Nonperforming assets to total assets remain at the low levels typical of our company at 9 basis points of total assets as of June 30, 2026. Nonperforming loans to total loans over the last 6.5 years averaged 12 basis points. The allowance for credit losses stands at 1.13% of total loans as of June 30, 2026. And on a dollar volume basis was nearly 10x the level of nonperforming loans, providing a very strong coverage relative to past due nonperforming loan levels. These numbers demonstrate our long-standing commitment to excellence in loan underwriting and administration, improved on balance sheet liquidity and loan-to-deposit ratio. At the end of the second quarter of 2026, our loan-to-deposit ratio stood at 93% compared to 100% at June 30, 2025, and 91% on December 31, 2025, 98% on December 31, 2024, and 110% on December 31, 2023.

As of June 30, 2026, our deposit mix included 27% noninterest bearing deposits and 24% lower cost deposits, up from 25% and 20%, respectively, at the end of the second quarter of 2025 which has contributed to the stability of our net margin -- net interest margin. Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth during the 12 months ended June 30, 2026, was 12.4%, with growth in the noninterest-bearing accounts outpacing the growth in interest-bearing accounts during that period.

Our recent focus on deposit growth is not new to our bank. In fact, the last 5 year-end periods demonstrate a deposit compounded annual growth rate of 9.2%. Strong commercial loan growth. Commercial loan growth in the second quarter of 2026 was $115 million, an annualized growth rate of 11.7%. As foreshadowed in the prior quarter's commentary, Loan payoffs did moderate from the prior 4 quarters' experience, reducing by $60 million compared to the prior quarter.

June 30, 2026 commitments to make new commercial loans totaled $224 million and commitments to fund existing commercial and residential construction loans totaled $283 million with each amount at or near 5 quarter highs. We expect that loan growth for 2026 will fall within the range of previously defined expectations of mid-single-digit percentages. Continued strong growth in key fee income categories. Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 35% increase in the service charges on accounts during the second quarter of 2026 compared to the second quarter of 2025.

Our credit and debit card offerings report growth of 21% in the first 6 months of 2026 compared to the respective 2025 period, Well managed expenses. Net revenue defined as net interest income plus noninterest income grew 15.3% to $136.3 million during the first 6 months of 2026 and from $118.2 million in the respective 2025 period. Occupancy costs plus data processing costs were virtually unchanged as a percentage of net revenue and salaries and benefits increased from 34% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market.

In some, these traits have allowed us to report a quarter-over-quarter EPS growth of 10% in the second quarter of 2026 compared to the prior year second quarter, a 1.52% return on average assets and a 14% return on average equity in the second quarter of 2026 and an annualized 11.6% increase in the tangible book value per share in the current year second quarter compared to the first quarter of 2026. Additionally, our 5-year tangible book value per share compounded annual growth rate of 9% and 5-year earnings per share compounded annual growth rate of 15.1%, historically placed us in the top tier of our proxy group.

We remain excited about the recently completed combination with Eastern Michigan. The integration of operations is well underway and the cultures have matched very well. That concludes my remarks. I will now turn the call over to Chuck.

Thanks, Ray. This morning, we announced 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 for the second quarter of 2025. Net income during the first 6 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 6 months of 2025. Growth in net income during both time frames primarily reflected increased net interest income and lower provision expense that more than offset higher noninterest expense costs and federal income tax expense. Excluding nonrecurring costs associated with the year-end 2025 acquisition of Eastern Michigan and previously announced core and digital banking system conversion, adjusted net income was $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 6 months of 2026.

Adjusted diluted earnings per share increased $0.14 or approximately 10% in the second quarter of 2026 compared to the second quarter of 2025 and increased $0.39 per diluted share or approximately 15% during the first 6 months of 2026 compared to the first 6 months of 2025. We believe using these non-GAAP measurements reflect our core earnings performance and provides for more accurate current period versus prior period comparisons. Interest income on loans was relatively unchanged during the second quarter and first 6 months of 2026 compared to the prior year periods, reflecting loan growth that was offset by a lower yield on loans.

Average loans totaled $4.89 billion during the second quarter of 2026 compared to $4.70 billion during the second quarter of 2025, an increase of $197 million. Mercantile Bank's robust commercial loan fundings of $535 million during the last 12 months were largely mitigated by significant levels of payoffs and partial paydowns on certain larger commercial loans during those periods, which aggregated $459 million. Our yield on loans during the second quarter of 2026 was 28 basis points lower than in the second quarter of 2025, primarily reflecting the 75 basis point aggregate decline in the federal funds rate during the last 4 months of 2025.

Interest income on securities increased during the second quarter and first 6 months of 2026 compared to the prior year periods, reflecting growth in the securities portfolio and a higher yield. The growth in higher yield reflects the acquisition of Eastern Michigan, along with ongoing portfolio growth and reinvestment of mature lower-yielding investments at Mercantile Bank. Average balances were up $325 million and the average yield increased 54 basis points quarter-over-quarter. Interest income on other earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago increased during the second quarter and first 6 months of 2026 compared to the prior year periods, reflecting a higher average balance that more than offset a lower average yield.

The average balance was up $178 million, while the average yield declined 87 basis points quarter-over-quarter, lateral which largely depicts the aggregate 75 basis point decrease in the federal funds rate during the last 4 months of 2025. In total, interest income was $4.7 million and $9.8 million higher during the second quarter and first 6 months of 2026 compared to the respective prior year periods. Interest expense on deposits decreased during the second quarter and first 6 months of 2026 compared to the prior year periods reflecting a lower cost of deposits that more than offset interest-bearing deposit growth.

The growth in interest-bearing deposit balances and the lower cost of these funds reflect the acquisition of Eastern Michigan, along with growth and lower deposit costs at Mercantile Bank. Cost of interest-bearing deposits at both banks were positively impacted by the aforementioned decline in the Fed funds rate in the latter part of 2025. Average interest bearing deposits totaled $3.96 billion during the second quarter of 2026 compared to $3.46 billion during the second quarter 2025, an increase of $493 million. The cost of all deposits was down 50 basis points during the second quarter of 2026 compared to the second quarter of 2025.

Interest expense on Federal Home Loan Bank of Indianapolis advances declined during the second quarter of first 6 months of 2026 compared to the prior year periods, largely reflecting a lower average balance. Interest expense and other borrowed funds increased during the second quarter and first 6 months of 2026 compared to the prior year period, largely reflecting the impact of a term loan we obtained in late 2025 to assist in the cash portion of the Eastern Michigan acquisition. In total, interest expense was $3.0 million and $5.3 million lower during the second quarter and first 6 months of 2026 compared to the prior year periods.

Net interest income increased $7.8 million and $15.1 million during the second quarter and first 6 months of 2026, respectively, compared to the prior year periods, primarily reflecting growth in earning assets and a higher net interest margin. Average earning assets totaled $6.43 billion during the second quarter of 2026 compared to $5.73 billion during the second quarter of 2025, an increase of $699 million that largely reflects the acquisition of Eastern Michigan at year-end 2025 along with the securities and overnight funds growth at Mercantile Bank.

The net interest margin was 3.59% during the second quarter of 2026 compared to 3.48% during the second quarter of 2025. The improvement is largely due to the Eastern Michigan acquisition. The yield on earning assets declined 33 basis points while the cost of funds declined 44 basis points during the second quarter of 2026 compared to the prior year second quarter. Impacting our net interest margin over the past couple of years was our strategic initiative to lower the loan to deposit ratio which generally entailed deposit growth exceeding loan growth and using additional monies to purchase securities.

A large portion of deposit growth was in higher costing money market and time deposit products while the purchase securities provided a lower yield than loan products. Despite that strategic initiative and declines in the federal funds rate during the latter parts of 2005 (sic) [ 2025 ] and 2024, our quarterly net interest margin has remained relatively stable. Over the past 8 quarters, our net interest margin has averaged 3.49%, with a high of 3.59% and a low of 3.41%. We remain committed to managing our balance sheet in a manner that minimizes the impact of change in interest rate environment on our net interest margin.

Basic funds management practices such as match funding combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities and higher rate time deposits along with scheduled rate adjustments on residential mortgage loans should provide for a relatively stable net interest margin in future periods. We recorded provisions for credit losses of negative $1.8 million and negative $3.6 million during the second quarter and first 6 months of 2026, respectively. The second quarter negative provision expense 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, general allocations necessitated by net loan growth and an increase in certain qualitative factor allocations.

The reserve balance decreased $1.3 million during the second quarter of 2026, reflecting the negative $1.8 million provision expense and net loan recoveries of $0.5 million. The reserve balance equals 1.13% of total loans at June 30, 2026. Our sustained strength of loan quality metrics continues to be impactful to our loan loss reserve calculations. The baseline allowance largely determined from historical net loan charge-off activity represents only 1/3 of our current reserve balance, reflecting a low level of net loan charge-off activity during our look-back period from the beginning of 2011 through the end of the second quarter of 2026.

Specific reserve allocations on nonperforming loans totaled just $0.9 million or about 2% of the reserve balance at the end of the second quarter. Noninterest expenses were $6.0 million and $17.0 million higher during the second quarter and the first 6 months of 2026 respectively, compared to the prior year periods. Excluding onetime costs associated with the ongoing core and digital banking system conversion, and year-end 2025 acquisition of Eastern Michigan that aggregated $0.6 million and $3.9 million during the second quarter and first 6 months of 2026, respectively.

Noninterest expenses increased $5.4 million and $13.1 million compared to the prior year-end periods. Eastern Michigan Bank's noninterest expenses totaled $4.0 million and $8.0 million during the second quarter and first 6 months of 2026, respectively. The increase in core operating costs largely reflects higher salary and benefit costs with the remaining growth generally depicting the impacts of inflation and larger balance sheet. In addition, we recorded a $1.4 million decrease in allocations to the reserve for unfunded loan commitments primarily reflecting a lower level of commercial loan commitments largely stemming from the high level of commercial loan linings that took place during the second quarter.

Federal income tax was $1.9 million and $2.0 million higher during the second quarter and first 6 months of 2026, respectively, compared to the prior year periods, largely reflecting a higher level of pretax net income and a lower level of net benefits from transferable energy tax credits. The effective tax rate was 16.9% during the second quarter and first 6 months of 2026 compared to 12.9% and 15.7% during the respective time periods in 2025. The 2025 period had higher levels of transferable energy tax credit activity given carryback opportunities.

Additional acquisitions of transferable energy tax credits may be made from time to time subject to our investment policy, tax credit availability and tax credits derived from our low-income housing and historical tax credit activities. Both Mercantile Bank and Eastern Michigan Bank have strong and well-capitalized regulatory capital positions. Mercantile Bank's total capital ratio -- risk-based capital ratio was 13.5% as of June 30, 2026, $205 million above the minimum threshold to be categorized as well capitalized.

Eastern Michigan Bank's total risk-based capital ratio was 23.1% as of June 30, 2026, $36 million above the minimum threshold to be categorized as well capitalized. We did not repurchase shares during the second quarter of 2026. We have $6.8 million available in our current repurchase plan. Thoughts on the remainder of 2026. On Slide #23 in the investor presentation, we share our assumptions on the interest rate environment and key performance metrics for the remainder of 2026, but the caveat that market conditions remain volatile, making forecasting difficult.

This forecast is predicated on no changes in the federal funds rate during the remainder of 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it has over the past 8 quarters. We are projecting loan growth in the range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as expected fewer commercial loan payoffs during the remainder of the year. We are forecasting a higher net interest margin during the last 6 months of 2026 compared to the first 6 months of 2026 as we benefit from commercial loan growth, lower levels of monies at the Federal Reserve Bank of Chicago and maturing low-yielding fixed rate commercial real estate loans and investments.

We are projecting a federal income tax -- federal tax rate of 17% which encompasses continued growth in net benefits from our low-income housing and historical tax credit activities along with additional transferable energy tax credit investments. Expected quarterly results for noninterest income and noninterest expense are also provided for your reference. Noninterest expense projections reflect personnel investments that were made in the latter part of 2025 and first 6 months of 2026 and expected during the remainder of 2026 to support expansion in Southeast Michigan, as well as to support operational areas as we switch core and digital banking providers to enhance the durability, efficiency and experience for our customers and employees.

Costs associated with the core and digital banking system conversion are not included. In closing, we are very pleased with our operating results during the second quarter and first 6 months of 2026 and continued strong financial condition and believe we remain well positioned to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions. That concludes my prepared remarks. I'll now turn the call back over to Ray.

Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call. .

[Operator Instructions] The first question comes from Daniel Tamayo with Raymond James. Your line is now open.

All right. Maybe we can just start on the expense increase in the guidance there. I hear what you were saying there, Chuck, in the commentary about the increased personnel investments and the expansion in Michigan. Maybe you could just parse out kind of what's related to the hirings in Southeast Michigan and what's related to the core conversion and as much as you could help us find the settling point after the costs come out post core conversion, that would be helpful. .

Yes, this is Chuck. I'm glad to answer your questions. There's definitely a lot going on that impacts of overhead costs. The costs associated with the core conversion, we want to make sure that it's a big lift for our team, and we want to make sure that we do it effectively and accurately. So we made the determination early on is to make sure that we are, I would say, more than fully staffed, especially in certain operational areas to help with not only the core conversion, but especially the training.

Clearly, there's going to be a time period where we have to make sure that all of our employees are trained on their respective areas of the new system, both the core and the digital system. And so we have been very aggressive in hiring in those areas to make sure that we're fully staffed at least. We're very excited about our expansion into Southeast Michigan. That started quite a few years ago. But really, within the last, I would say, 12 months has really taken off. We've hired exceptional personnel, both on the commercial side as well as the treasury side in that market. and we continue to talk to additional folks to join our team.

And we expect -- as Ray has said on several occasions, Southeast Michigan is 1/3 of Michigan, and we are but a tiny blip there. given the size of that market and where we're at now. We made huge strides already over the last 12 months. If you look at our net loan growth, obviously, the Southeast Michigan doesn't have much in the way of payoffs. But when you look at their growth that equals about our net growth, obviously, we've had a lot of payoffs here, notwithstanding the strong fundings we've had in this market. So I can't give you a number specifically as we go forward in regards to the Southeast Michigan market. We think it's a strong market for us. and we expect to continue to build that market out as we have over the last 12 months into the future period.

So that's where most of that additional expense is coming from. Obviously, we want to continue to build out our company in all of our markets as the opportunities present themselves. We're very pleased with the market. I think when we look at the loan growth, all of our markets are showing growth. and we want to continue to support that with additional people at all levels and all positions throughout the company.

And then just in terms of like post core conversion, the savings still kind of on pace for what you guys were talking about before? Maybe just remind us where -- what type of expenses you expect to recoup.

Yes, the expenses -- yes, Dan, the expenses -- the savings are really going to start in the second quarter of next year. When we do flip the switch in February and we get through all the testing and validations and exit our current providers in both those areas. It's kind of hard to put a specific number on the savings. I mean we can look at different contracts, but obviously, there's growth in volume that has impacts. And we are switching providers on both digital and core, which is -- which are different platforms. .

And as we look to our teams and make sure that we are set up and our framework is designed to best fit that new framework, We've been making changes there as well. We do know that the savings on the core itself just on the contract is pretty significant. But there's a lot of moving parts that make it very difficult to say this is going to be our cost going forward. And it will be a while before we get to that point.

Okay. Fair enough. On the credit side, so obviously, a really nice story. You talked about kind of the puts and takes within the reserves. And it sounds like you're getting down towards the end of the specific reserves or at least those are much more modest at this point. but you still have net recoveries. I guess if you have any thoughts on where you think reserves could stabilize or when you think the loan loss provision might turn positive earning guidance on that number would be helpful.

Yes. Certainly, we enjoy negative provisions, especially when they're -- because of recoveries and the resolution of loan situations that, as we like to remind everybody, we did have provision expense associated with building up those specific reserves as we felt appropriate. I think the relatively low level of specific reserves on nonperforming loans that we have right now is really a reflection of 2 things. One and foremost is not very much at all in just gross dollars of nonperforming loans that we have on the books.

But I think it's also reflective of the way that we underwrite loans that when we -- there's always a risk of loss but when we have a loan go sideways that we go into collection mode, we've got quite a bit of collateral. We've got guarantees that we can rely on, which obviously then minimize the specific reserves that we need to establish. But overall, it's a reflection of the fact that we just don't have a lot of loans are not performing.

And we haven't had for quite a while now, certainly pass most of our look-back period, which basically means that we have to rely on the qualitative factors to support what we believe is an adequate level of the loan loss reserve. We're at 1.13%. I think if you look at us, we kind of been between where we are now and probably the low 120s for quite some time, and now, and I would expect, notwithstanding any significant change in the economy that we would stay somewhere within that range.

Clearly, the economy has the biggest impact on the overall quality of our loan portfolio at any given time. So if we did enter into a period of stress, our reserve like all banks reserves are designed to reflect that with increased reserve level requirements, which would lead to obviously bigger size -- potential sizable positive provision expenses.

So overall, we feel very solid and feel very good about the quality of our loan portfolio. It's been very consistent at its relative current level now. We don't see anything in the near term at least, that is going to change that. We don't have a lot of charge-offs. So we generally don't have a lot of recoveries, but we do try to recover every dollar that we do charge off and have expectations that while on the accounting side, we've had to eliminate it, the borrower still owe us money. and we're going to work through any channels that we can -- that we have available to us to maximize those recoveries.

The next question comes from Brendan Nosal with Hovde Group.

Maybe just starting up here on kind of funding in the kind of the environment. Can you just update us on the competitive landscape for core funding and how that has evolved across your footprint over the last couple of months?

Yes. I would say -- this is Chuck again. I would say it's been pretty consistent. We really haven't seen much in the way of deposit rates changing. We always have the credit union issue to deal with, especially on the CD side of things. But our CD portfolio has stayed pretty steady. We've had really solid growth. We grew very significantly on a net basis during the first quarter. And I think we did see some deposit reductions in the second quarter on a local basis, but that was really seasonality, especially on the public unit side. as well as, obviously, April 15 with tax payments being due with our -- primarily our business but also some consumer customers as well.

The third quarter is usually pretty good, mostly because of the public units when they start getting their taxes in on the property tax side of things here in Michigan. So we do expect some very solid local deposit growth here in the third quarter from that. But we've also seen very significant growth and Ray kind of touched on some of the numbers on our checking account products, especially our noninterest-bearing which is really a direct reflection of the very strong C&I loan growth that we've experienced so far this year.

There's lots of reasons why we like C&I, but certainly, 1 of them is the deposit balances that they bring and then the myriad of different cash management, treasury management products that we have. And you can see from the improvement or the growth, I should say, on service charges where that treasury management income gets recorded on our income statement, the solid growth there is really a reflection of the growth on the commercial side with those loan balances coming over with the associated deposits. but also the expanded use as we continue to market our ever-growing suite of products to our existing customers as well.

So on an overall basis, the deposits are growth -- we're very pleased about that. I think that deposit growth, along with bringing Eastern Michigan on board is letting us get out of the brokered CD market. We had significant levels of maturities here in the second quarter to the degree that we're down to only about $20 million left. There's 2 CDs there that both matured in December. So we're hopeful that we will be out of the brokered city market by the end of this year.

And again, that's really strongly attributed to the local deposit growth that we've been experiencing and expect to continue to have.

Okay. All right. One more for me, just turning to capital. res continues to build nicely this quarter even with kind of return of more robust loan growth. Is there a point at which kind of the capital build becomes something you want to more actively manage and kind of talk about the pass-through which you would do that and then kind of whether share repurchase is something you would be interested in if we continue to see ratios build?

Yes. I appreciate you noticing our capital ratios. Obviously, we're very pleased with that, notwithstanding the strong growth that we do have on the asset side, we're able to grow our overall capital ratios. And it makes us feel good. They have strong capital ratios. You never know what's going to happen from an economic standpoint, but it allows you to take advantage of the opportunities that come, whether it's acquisitions, loan growth, expansions in the markets, all those things, a position of strong capital that gives you the ability to take care of -- to take advantage of those opportunities as they come about. .

I think from a buyback standpoint, clearly, it's been quite a while since we bought back any shares. We do have a plan in place. Our Board has always been supportive of management's recommendations with its buyback plans. I think a big part of that clearly is our stock price, and we're very pleased with the run that we've had where we think that we're finally getting close to where we think we should be valued. We've been frustratingly below some of the benchmarks that we look at. So we're obviously pleased with what we've seen over the last few months there. I think the other thing that we're looking at making sure we have capital to take advantage of those opportunities, again, we do have our subordinated notes that do flip to a floating rate and become callable in January.

We're obviously looking at that. That is on our radar. We've made no decisions whatsoever in regards to that. Quite frankly, we would love to earn our way out of that position that we've got there. And I think we're definitely going in the right direction from that potential opportunity there. I think the other thing that we've got -- we had very favorable pricing. While we're not going to keep the 3.25% fixed rate that we have come January. Our spread over 90-day LIBOR, I'll say, is only 212 basis points, which if you did the math today, that's a rate that's still under 6% which I think is very favorable compared to if you wanted to refinance that with a new sub note. Not saying we will or won't. We're not at that point yet.

But if we do start looking at the capital haircut, doing some calculations, that's about 30 basis -- every year, losing 20% of the balance, it's about 30 basis points of our total risk-based capital ratio. So looking at those numbers, looking at the environment today, all the forecasting that we're doing, we're comfortable with at least 1 year of letting that float. It's not even a year after that or who knows more. as we look at our capital stack each quarter end and certainly at each year-end.

So that's kind of our thoughts on capital is, obviously, we want to continue to augment it with the strong net income, pay a competitive and growing cash dividend, making sure that we've got lots and lots of capital to take advantage of the opportunities and continue to grow the company, which obviously is the foundation for additional net income growth.

The next question comes from Nathan Race with Piper Sandler.

Chuck, I was wondering if you can unpack some of the specific margin drivers for the expansion that you alluded to over the next couple of quarters, specifically around what amount of loans you have repricing upwards that are currently fixed? And also just in terms of securities cash flow coming off and kind of what that repricing looks like as well in that's reinvested.

Yes. I know I gave 1 of the slides in there that has the amount -- it's on Slide 9. So yes, there's definitely a few things that are going on that are having a positive impact on our net interest margin. On Slide 9, we give the volume of fixed rate CRE as well as our agency bonds that are scheduled not only to mature the rest of this year, but also into 2027. So a lot of opportunity for some continued yield enhancement from that activity. The other thing that happened was -- it started really doing -- having a bigger impact in the back half of the second quarter than the first half of the second quarter was our level of deposits at the Federal Reserve coming down, and that's really a strong reflection of the net loan growth.

So obviously, we've been dealing with some pretty sizable payoffs. Quite frankly, we had some sizable payoffs again in the second quarter, especially with some line paydowns that came in with borrowers having excess cash in their operations. But as we continue to grow our loan portfolio, especially on the commercial side, we'll be able to use our existing excess funds that we've got at the Federal Reserve to fund that. So going from a 3.65% that we get on our funds at the Federal Reserve to something, is probably in the 6s somewhere on the loan side. So as we continue to forecast that transition happening that certainly buoys the net interest margin along with the repricing that we talked about.

I would say those are the main drivers for the expected improvement in the margin.

Could you just help us in terms of kind of what that upward repricing looks like on the $100 million or so of loans that are expected to mature in the back half of this year? Are we talking about like something north of 6% kind of where like the blended rate on new loans are coming on the portfolio at -- or just any thoughts on kind of what the blended rate of new loan production is these days.

Yes, I'd say we would probably be looking at about a 200 basis point give or take, obviously, improvement on the existing average rate of about 4.6%, so somewhere in the mid-6s is where we would think that we would reprice on an average basis. And then we've got $38 million in agency notes -- agency bonds at just a little over 1%. And we're -- based on our strategy right now, buying that yield is a little over 4%.

So we'll pick up about 300 basis points on those dollars for the rest of the year.

Got you. And then if I could just ask 1 more on kind of deposit growth expectations going forward. And I appreciate the commentary earlier on some of the seasonality that impacted 2Q around tax payments and so forth. But any visibility into kind of the core deposit calling pipeline? And I know you guys have some excess liquidity, you can use to fund loan growth, but just any thoughts on kind of how deposit gathering can trend over the next few quarters as well?

Yes. Like I mentioned, we'll definitely see some seasonality as we did in the second quarter. When you get to the end of the second quarter and I'm speaking for all banks basically, the public funds, especially here in Michigan, public units in Michigan collect most of their taxes during the summertime, July and August and September. So you kind of get to the end of June, it's kind of at the low point with deposit balances. And then you kind of get to September, and it's kind of the high point.

And then obviously, it goes up and down from there. I would say on a core basis, on an average basis, if you will, like I said, June 30 is a low point. So we would expect higher average balances from our public unit customers in the future quarters just from the seasonality. Again, we continue to get very strong local deposit growth certainly, especially on the noninterest-bearing checking, that's coming from our commercial activities, our commercial lending activities, especially on the C&I side. And as we talked about, that was really the leader of the growth. on the commercial lending side.

So looking at borrowers paying anywhere from -- funding 10% to 20% of their own loans with their deposit balances. So getting those obviously helps the cost of deposits, but also again, allows us to cross-sell the treasury management products that we have, which helps the fee income side as well. We're also doing a really good job of just bringing in finding deposit-only customers and making sure that we've got -- as we believe we do, a complete suite of products that is attractive to those types of customers as well.

So a lot of it is just blocking and tackling, doing what Mercantile does, what a community bank does every day. is out there selling our products and services and our values, driving relationships. We are a relationship bank on everything that we do. And so when we have a customer, we want the whole Valoc and deposits has to be a big part of that. And so that's -- we don't have any secret sauce, magic anything like that. We just do basic banking and making sure we're getting the entire relationship and when the customers come in, making sure that we're taking really good care of them.

The next question comes from Damon DelMonte with KBW.

I hope everybody is doing well today. So most of my questions have been asked and answered, but just a few quick ones here. Chuck, I appreciate the color and the outlook there for the margin. If we were to see a rate hike in 2027, how would you expect the margin to respond to that?

I think overall, we think that we're pretty well stable on our net interest margin. We work very hard to make ourselves -- agnostically use that term all the time to interest rate changes. We specifically manage the structure of our balance sheet that when rates go up, we see yields go up, we see costs go up. When rates go down, we see the opposite happening. And it's -- again, basic banking, it's matched funding and looking at the structure of your loan portfolio, looking at your deposit base and then using your investment portfolio to kind of bridge any gaps you might have in there from a repricing perspective.

I think if we have super aggressive cuts or increases, there will be a little more change there just as something to catch up. But if we're looking at 25 basis points a quarter, 50 basis points a quarter, my expectation are modeling supports the fact that we would expect our margin to stay relatively stable.

Got it. Okay. That's helpful. And then in your commentary around the kind of like the loan loss reserve outlook going forward, did you say that in the last couple of years, you've been kind of in the 120 basis point range or down to 130 basis point. So you'd expect it to kind of stay in that range. So I mean, would we expect a little bit of build towards the 120 basis points or do you think kind of in the mid one teens is probably acceptable.

I would say that given the factors that we have on commercial loan growth compared to our mortgage factors, our reserve factors for commercial loans is a little bit under 1% while on residential mortgage loans is a little over 2%, but it really reflects -- well, reflects a lot of things, but 1 of the things that definitely reflects is duration. I won't get on my soapbox this morning, but CECL is a duration-based model. We're a commercial lender.

And commercial loans are short term, and we're not allowed -- while we have to take into account prepayments and we definitely do that on the mortgage side, we're not allowed to look at ourselves as a relationship bank and make the assumption that we're going to renew loans. We're going to renew lines of credit when they mature in a year. We're not allowed to do that. So that's the biggest hindrance that we have when we're trying to build a reserve under the CECL framework is this duration expectation. And when your biggest asset has a duration of maybe 2 years, it's difficult to build a reserve.

But we do, we got the different allocations and different environmental things that we can work off of. I would say any significant growth in the reserves, I'm not expecting the allocations in our calculations to differ much going forward. The biggest thing is going to be the economy.

So if we get our independent third-party economic forecasts that show deterioration, that would drive a reserve build and certainly, if any of that downplay in the economy starts impacting specific customers, and we have to start putting -- having some loans higher volume on nonaccruals and starting to do specific reserves, things like that. would obviously result in a reserve build as well. I think all things being equal with a steady economy, our nonperformers is staying relatively stable, which they have. I would expect using your question probably mid-teens on a coverage ratio.

Got it. Okay. That's helpful. And then I guess just lastly, when you think about the investments that you made in Southeast Michigan and you think about the outlook for growth, is that becoming a more key component of the overall driver of the portfolio growth? Or are you still seeing good looks in the Greater Grand Rapids area and other parts of your footprint as well?

The answer is all of the above. The outlook in Southeast Michigan is good. We have a really strong team there, and they're early in their time frame with us, so bringing over a lot of customers, and they've been very successful at it. It's a huge market with lots of potential. And yet in markets like Grand Rapids and the rest of West Michigan, Central Michigan, Northern Michigan. we're more mature in those markets, but there's plenty of opportunity there. So the originations are fairly well spread out across our footprint on an even basis.

[Operator Instructions] Our next question comes from Matthew Breese with Stephens, Inc.

Curious, what was the spot cost of deposits in the spot NIM at the end of the quarter? And just curious how you feel about your ability to either maintain or further lower deposit costs from here?

Matt, I would say that when you look at our yields for the quarter, I think that's really reflective of our deposit rates. We didn't change deposit rates. I don't think at all during the quarter. There's some opportunity for some repricing on the CD side, but it's not a huge component. And I don't think the repricing is overly significant. So I think if you look at the yields on our deposits for the quarter, I think that's reflective of where our rates are even today. .

Okay. And then on commercial real estate, you'd mentioned you expect some slowdown in payoff prepayment activity. What gives you that confidence? And what is the expectation for commercial real estate growth in the coming quarters?

The confidence comes from communication with our borrowers and we stay in close contact. And in the prior state of payoffs that we had over the previous 4 quarters. they told us what was coming and largely delivered on that. They're telling us that those will slow -- of course, they reserve the right to change their mind. So who knows exactly what the future will bring, but the communication has been that those should continue to moderate.

Okay. And then just last one. You've spoken a couple of times about kind of the mix shift out of cash into loans and how that's accretive to NIM, Just curious what your definition is of excess cash tends to move around a little bit with seasonal deposits. But from where we sit today at about 5% cash to assets, how much of that do you think is at us.

Yes. If you look at our balance sheet, I have Greg in front of me. I think if you looked at interest-earning assets that we have -- that we mark on our balance sheet, that number will be somewhere between $100 million and $125 million which is the...

Time frame expectation to kind of mix shift that?

We love to be able to do it by the end of this year. Of course, that's really net commercial loan growth is going to drive that based on our fundings and any payoffs that we do get. But I would think that by early next year, we would be able to get there, if not by the end of this year.

This concludes our question and answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks.

Just want to thank you for your participation in today's call and for your interest in Mercantile Bank Corporation and that concludes today's call. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Mercantile Bank Corporation's Annual Meeting of Shareholders. I am Ray Reitsma, President and Chief Executive Officer of Mercantile. Today's virtual-only meeting is a live webcast. We believe in engaging with our shareholders, and it is our hope that this virtual meeting will maximize the participation of shareholders regardless of their location. Thank you very much for participating in our virtual meeting today, and please note that this meeting is being recorded.

I would like to call the formal portion of this meeting to order. Rules of conduct. I'd like to draw your attention to the rules of conduct set forth for this meeting. The rules of conduct for this meeting are available in the Resources section of the webinar, which you can access by selecting the resources button located in the Zoom toolbar at the bottom of your screen. Shareholder ability to comment or ask questions is available in the Q&A section of the toolbar at the bottom of your screen.

The Board of Directors has appointed Amy Kam and Scott Setlock to serve as inspectors for this meeting. I would like to ask Mr. Setlock to also serve as the Secretary of the meeting. Mr. Setlock is Executive Vice President and Chief Operating Officer of Mercantile Bank Corporation and Mercantile Bank. Ms. Kam is First Vice President and Executive Operations Manager. I would now like to introduce our directors who are present today on the webcast. Michael S. Davenport, Michelle L. Eldridge, Joseph D. Jones, Richard D. McDonald, Michael H. Price, David B. Ramaker; Raymond E. Reitsma, Nelson F. Sanchez, Sarah A. Schmidt, Stephen J. Schwhoffer, Amy L. Sparks and Shoran R. Williams. I would also like to introduce Robert Bondi of Plante Moran, PLLC, our accounting firm; and Brad Wyatt of Greenberg Traurig LLP, our legal counsel.

Mr. Bondi has been given an opportunity to make a statement if he would like. At the end of the meeting, Mr. Bondi and Mr. Wyatt would be available to answer questions. Michelle Eldridge and Shoran Williams are serving as proxies for the shareholders who voted by proxy. The Board of Directors set the close of business on March 27, 2026, as the record date for this meeting. A list of shareholders as of the record date is available to view upon request by any Mercantile shareholder. If you wish to review the list, please send an e-mail to [email protected], and you will be connected to arrange of time to view the list. I've been advised by the inspectors that 13,455,442 of the 17,274,899 shares that are entitled to vote are present by proxy. Since the majority of the shares are represented, a quorum is present and the meeting may proceed.

A notice of this meeting was sent to each shareholder. Copies of the notice, proxy statement and annual report are available on our website on the Investor Relations page of the website. The minutes of the 2025 Annual Meeting of Mercantile Shareholders were made available in the Resources section of this webinar, which you can access by selecting the resources button located in the Zoom tool at the bottom of your screen.

I would accept the motion approving the minutes. I would suggest that one of the proxies make the motion.

My name is Michelle Eldridge. I move that the minutes of the 2025 Annual Meeting of Mercantile shareholders be approved as presented to this meeting.

Is there a second for the motion?

My name is Shoran Williams. I second the motion.

We will now vote on the motion to approve the minutes. All in favor, please say aye.

Aye.

One of the proxies has spoken on behalf of the shareholders. The motion is carried. The minutes of the 2025 Annual Meeting of Mercantile shareholders are approved as presented to this meeting. Ms. Eldridge and Ms. Williams as proxies were among the persons voting for the motion.

The first item of business is the election of 12 directors. Each will serve a 1-year term expiring at the 2027 Annual Meeting or until the election and due qualification of their successors. The proxy statement lists the 12 nominees proposed by our Board of Directors.

In accordance with the bylaws of the company, shareholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. Therefore, I declare the nominations closed. I would accept the motion regarding the election of the directors. I would suggest that one of the proxies make the motion.

I move that the following resolution be adopted. Resolved that Michael S. Davenport, Michelle L. Eldridge, Joseph D. Jones, Richard D. McDonald, Michael H. Price, David B. Ramaker, Raymond E. Reitsma, Nelson F. Sanchez, Sarah A. Schmidt, Stephen D. Schwhoff, Amy L. Sparks and Shoran R. Williams are hereby elected as directors of Mercantile Bank Corporation to serve 1-year terms expiring at the annual meeting in the year 2027 or upon the election and qualification of their successors.

Is there a second for the motion?

I second the motion.

Second item of business is the ratification of the appointment of Plante & Moran, PLLC as our independent registered public accounting firm for 2026. I would accept the motion.

I move that the following resolution be adopted. Resolved that the appointment of Plante & Moran PLLC as Mercantile Bank Corporation's independent registered public accounting firm for 2026 is ratified.

Is there a second for the motion?

I second the motion.

The third item of business is an advisory vote to approve the compensation of our named executive officers as described in the proxy statement. I would accept the motion.

I move that the following resolution be adopted. Resolved that the shareholders approve on an advisory basis, the compensation of Mercantile Bank Corporation's executives as disclosed in the compensation discussion and analysis, the compensation tables and the related disclosures contained in the proxy statement.

Is there a second for the motion?

I second the motion.

With no further proposals before us, the polls are now open. The proxies have submitted their proxy votes to the inspectors on the motions. The polls are now closed. As a reminder, if you have any questions for either our legal counsel or our public accounting firm, please enter your question in the Q&A section on your screen.

The votes have been counted. Regarding the election of directors, the inspectors report that more than 96.33% of the shares represented at the meeting have voted for each nominee. Accordingly, all 12 nominees have been elected directors of Mercantile to serve 1-year terms. The 1-year terms will expire at our annual meeting in the year 2027 or upon the election and due qualification of their successors.

Regarding the motion to ratify the appointment of Plante Moran PLLC as our accounts for 2026, the inspectors report that a majority of the shares were voted for ratification. The preliminary tally shows 13,391,411 shares voted for ratification, 54,526 shares voted against ratification and 9,505 shares abstained from voting. Based on the vote, the appointment of Plante Moran PLLC has been ratified.

Regarding the advisory vote on our named executive officers' compensation, the inspectors report that a majority of shares were voted for approval. The preliminary tally shows 10,460,125 shares voted for approving compensation, 323,243 shares voted against approval and 224,562 shares abstained from voting. Accordingly, the compensation of our executives has been approved on an advisory basis. The inspectors will furnish the secretary with a written report of the final count, and this will be made available online in the next few days.

Our accountants and legal counsel are now available to answer questions. After the formal portion of the meeting, there will be a question-and-answer period when you may ask questions of our officers. Do we have any questions for our accountants or counsel?

We do not. If there is no further business to come before the meeting, I would accept a motion for adjournment. Would one of the proxies make a motion?

I move that the meeting be adjourned.

I second the motion.

You've heard the motion to adjourn. One of the proxies may speak on behalf of the shareholders. All those in favor, please say aye.

Aye.

The motion is carried. The meeting is adjourned. There will now be a brief question-and-answer period with our executive officers. You may submit your questions by using the Q&A section on your screen. Please note that we will adhere to the rules of conduct in answering your questions. We have any, Amy? Okay. As there are no questions, the question-and-answer period is now concluded. Thank you for joining us for the meeting and for your interest in our company.

Good morning, and welcome to the Mercantile Bank Corporation 2026 First Quarter Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us. Today, we will cover the company's financial results for the First Quarter of 2026. The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer; as well as Chuck Christmas, Executive Vice President and Chief Financial Officer.

Our agenda will begin with prepared remarks by both Ray and Chuck and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com.

After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission's filings. The company assumes no obligation to update any forward-looking statements made during the call.

Let's begin. Ray?

Thanks, Nichole. Our results for the first quarter of 2026 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of the purchase of Eastern Michigan on December 31, 2025, represents execution of our strategic objectives around deposit growth, loan growth and margin stability paired with strong asset quality and overall financial performance. We continue to demonstrate top cortile return on asset performance relative to our peers built upon the following traits: Trait #1, a strong and durable net interest margin.

Over the last 5 quarters, the SOFR 90-day average rate has dropped 67 basis points while our margin increased by 8 basis points to 3.55%. This illustrates effective execution of our strategic objective to maintain a steady margin by matched funding of our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large portion of floating our proportion of floating rate assets.

Trait #2, very strong asset quality. Non-performing assets to total assets remain at the low levels typical of our company at 11 basis points of total assets as of March 31, 2026. Non-performing loans to total loans over the past 6.25 years averaged 12 basis points. The allowance for credit losses stands at 1.18% of total loans as of March 31, 2026, nearly 10x NPAs providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our long-term commitment to excellence in underwriting and loan administration.

Trade #3, improved on-balance sheet liquidity and loan-to-deposit ratio. At the end of the first quarter of 2026, our own to-deposit ratio stood at 89% compared to 91% on December 31, 2025, and and 98% in December 31, 2024, and 110% on December 31, 2023.

As of March 31, 2026, our loan -- our deposit mix included 25% and non-interest-bearing deposits and 25% lower cost deposits, unchanged from year-end to 2025, but up from 20% at the end of the third quarter of 2025, which has contributed to the stability of our net interest margin.

Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth for the first quarter of 2026 compared to the first quarter of 2025 was 15.8%. The growth was roughly proportional in non-interest-bearing to interest-bearing accounts.

Trade #4, strong deposit and loan compounded annual growth rates. Our recent focus on deposit growth is not new to our bank. In fact, the last 5 year in periods demonstrate a deposit compounded annual growth rate of 9.2%. Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%.

As foreshadowed -- in prior quarter's commentary, loan growth was impacted by an elevated level of loan payoffs compared to historical norms in the first quarter of 2026. Payoffs from borrower sales of assets were over $40 million above the elevated quarterly average experience in 2025 and planned refinancing of multifamily projects to the secondary markets, were nearly 5x the quarterly average amount in 2025 or nearly $40 million in gross dollar terms.

However, March 31, 2026, commitments to make new commercial loans totaled $289 million and commitments to fund existing commercial and residential construction loans totaled $272 million with each amount representing 5 quarter highs. We expect that loan payoffs will moderate in upcoming quarters and net loan growth for 2026 will follow within the range of previously defined expectations of mid-single-digit percentages. Quarter-to-date loan growth is well aligned with our year-end expectations.

Trade #5, continued strong growth in key fee income categories. Growth in commercial deposit relationships has supported growth in treasury management services resulting in a 35% increase in service charges on accounts during the first quarter of '26 compared to the first quarter of 2025.

Our credit and debit card offerings report growth of 17.6% in the first 3 months of 2026 compared to the respective 2025 period. Our mortgage team continues to build market share and generate a higher proportion of salable loans contributing to 12.4% growth in mortgage banking income during the first quarter of '26 compared to the prior year first quarter.

Trade #6, well-managed expenses. Net revenue, defined as net interest income plus noninterest income grew 18.1% to $67.6 million during the first quarter of 2026, from $57.3 million in the respective 2025 period. Occupancy costs and data processing costs were virtually unchanged as a percentage of net revenue. And salaries and benefits increased from 34.2% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market.

Other expenses include a $1.2 million increase in allocations to reserve for unfunded loan commitments compared to the respective 2025 period, reflecting the growth in our loan backlog and a $0.9 million increase in the core deposit intangible asset amortization account arising from the acquisition of Eastern Michigan.

In sum, these trades have allowed us to report a quarter-over-quarter earnings per share growth rate of 9%, a 1.4% return on average assets and a 12.5% return on average equity for the first quarter of 2026 and an increase in tangible book value per share over the prior quarter. Additionally, our 5-year tangible value per share a growth rate of 9% and 5-year earnings per share, compounded annual growth rate of 15.1% historically placed us in the top tier of our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation. The integration of operations is well underway and the cultures have meshed very well in the early stages of the process.

That concludes my remarks. I will now turn the call over to Chuck.

Thanks, Ray, and good morning to everybody. This morning, we announced net income of $22.7 million or $1.32 per diluted share for the first quarter of 2026 compared with net income of $19.5 million or $1.21 per diluted share for the first quarter of 2025. Higher net interest income and non-interest income, combined with lower provision expense more than offset increased overhead costs. Excluding after-tax onetime costs associated with the year-end 2025 acquisition of Eastern Michigan and previously announced core and digital banking system conversion, net income improved to $25.2 million or $1.46 per diluted share for the first quarter of 2026.

Using this non-GAAP basis, which we believe more accurately reflects our core earnings performance. Interest income on loans increased slightly by $0.2 million during the first quarter of 2026 compared to the prior year first quarter, reflecting loan growth that offset a lower yield on loans. Average loans totaled $4.83 billion during the first quarter of 2026 compared to $4.63 billion during the first quarter of 2025, an increase of $199 million that largely reflects the acquisition of Eastern Michigan at year-end 2025.

Mercantile Bank's robust commercial loan fundings during most of 2025 and -- in the first quarter of 2026 were largely mitigated by significant levels of payoffs and partial paydowns of certain larger commercial loans during those periods. Our yield on loans during the first quarter of 2026 was 24 basis points lower than the first quarter of 2025, primarily reflecting the aggregate a 75 basis point decrease in the Fed funds rate during the last 4 months of 2025.

Interest income on securities increased $3.9 million during the first quarter of 2026 compared to the prior year quarter. reflecting growth in the securities portfolio and a higher yield. The growth in higher yield reflect the acquisition of Eastern Michigan, along with the ongoing portfolio growth and the reinvestment of maturing lower-yielding investments at Mercantile Bank. Average balances were up $357 million, and the average yield increased 54 basis points quarter-over-quarter.

Interest income on other interest earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, increased $1 million during the first quarter of 2026 compared to the prior year first quarter.

[Audio Gap] Bank, while the 80 basis point decline in yield primarily reflects the aggregate 75 basis point decrease in the federal funds rate during the last 4 months of 2025. In total, interest income was $5.1 million higher during the first quarter of 2026 compared to the prior year first quarter.

Interest expense on deposits decreased $1.9 million during the first quarter of 2026 compared to the prior year first quarter, reflecting a lower cost of deposits that more than offset interest bearing deposit growth. The growth in interest-bearing deposit balances and the lower cost of these funds reflect the acquisition of Eastern Michigan, along with growth and lower deposit costs at Mercantile Bank.

Cost of interest-bearing deposits at both banks were positively impacted by the aforementioned decline in the federal funds rate during the latter part of 2025. Average interest-bearing deposits totaled $4 billion during the first quarter of 2026 compared to $3.44 billion during the first quarter of 2025, an increase of $555 million.

The cost of all deposits was down 46 basis points during the first quarter of 2026 compared to the first quarter of 2025. Interest expense on Federal Home Loan Bank of Indianapolis advances declined $0.3 million during the first quarter of 2026 compared to the prior year first quarter, largely reflecting a lower average balance. And interest expense on other borrowed funds increased $0.3 million during the first quarter of 2026 compared to the prior year first quarter, largely reflecting the impact of a $30 million term loan we obtained late in 2025 to assist in the cash portion of the Eastern Michigan acquisition.

In total, interest expense was $2.3 million lower during the first quarter of 2026 compared to the prior year first quarter. Net interest income increased $7.4 million during the first quarter of 2026 compared to the prior year first quarter, primarily reflecting growth in earning assets and a higher net interest margin.

Average earning assets totaled $6.42 billion during the first quarter of 2026 compared to $5.70 billion during the first quarter of 2025, an increase of $719 million that largely reflects the acquisition of Eastern Michigan at year-end 2025, along with securities and overnight funds growth at Mercantile Bank.

The net interest margin was 3.55% during the first quarter of 2026 compared to 3.47% during the first quarter of 2025. The improvement is largely due to the Eastern Michigan acquisition. The yield on earning assets declined 31 basis points, while the cost of funds declined 39 basis points during the first quarter of 2026 compared to the prior year first quarter.

Impact on our net interest margin over the past couple of years was our strategic initiative to lower the loan-to-deposit ratio, which generally entailed deposit growth exceeding loan growth and using additional monies to purchase securities. A large portion of deposit growth was in the higher costing money market and time deposit products, while the purchased securities provided a lower yield than loan products.

Despite that strategic initiative and declines in the federal funds rate during the latter parts of 2025 and 2024, our quarterly net interest margin was relatively stable during that time period ranging from a high of 3.52% to a low of 3.41% and averaging 3.47%. We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environment on our net interest margin. Basic funds management practices such as matched funding, combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities and a higher rate time deposits along with the scheduled rate adjustments on residential mortgage loans should provide for [indiscernible] will be stable net interest margin in future periods.

We recorded a negative provision expense of $1.8 million during the first quarter of 2026, compared to a positive provision expense of $2.1 million during the prior year first quarter. The first quarter negative provision expense was primarily comprised of improved economic forecast, changes in loan mix, a reduction in the residential mortgage loan portfolio, a decline in specific allocations and limited net growth in commercial loans due to the significant volume of loan payoff and partial paydowns.

The reserve balance decreased $1.5 million during the first quarter of 2026, reflecting the net impact of the negative $1.8 million provision expense and net loan recoveries of $0.3 million. The reserve balance equaled 1.18% of total loans as of March 31, 2026, and compared to 1.21% at year-end 2025.

Non-interest expenses were $11 million higher during the first quarter of 2026 compared to the prior year first quarter. excluding onetime costs associated with the year-end 2025 acquisition of Eastern Michigan and previously announced core and digital banking system conversion that aggregated $3.2 million. Non-interest expenses increased $7.8 million. The increase in core operating costs largely reflects higher salary and benefit costs. In addition, we recorded a $1.2 million increase in allocations to the reserve for unfunded loan commitments primarily reflecting a significantly higher level of commercial loan commitments that have been accepted by customers. The remaining increase in non-interest expense quarter-over-quarter generally depicts the cost of inflation and the increased cost of a larger balance sheet and office network. Eastern Michigan Bank's non-interest expenses totaled $4 million during the first quarter of 2026.

Despite a $3.2 million increase in pretax income during the first quarter of 2026 compared to the prior year first quarter, our federal income tax expense increased only $0.1 million. The acquisition of transferable energy credits and net benefits associated with our low income housing and historical tax credit activities equaled $0.8 million during the first quarter of 2026.

The tax benefit resulting from these activities -- both Mercantile Bank and Eastern Michigan Bank have strong and well-capitalized [indiscernible] Mercantile Bank's total risk-based capital ratio was $13.8 million as of March 31, 2026, $215 million above the minimum threshold to be categorized as well capitalized.

Eastern Michigan Bank's total risk-based capital ratio was 20.5% as of March 31, 2026, $30 million above the minimum threshold to be categorized as well capitalized. We did not repurchase shares during the first quarter of 2026. We have $6.8 million available in our current repurchase plan.

On Slide 23 of the investor presentation, we share our latest assumptions on the interest rate environment and key performance metrics for the remainder of 2026 with the caveat that market conditions remain volatile making forecasting difficult. This forecast is predicated on no changes in the federal funds rate during the remainder of 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it did during the latter part of 2024 and throughout 2025.

We are projecting loan growth in a range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as fewer commercial payoffs during the remainder of the year. We are forecasting our second quarter net interest margin to be similar to that of the first quarter with steady increases throughout the last half of the year as we benefit from commercial loan growth, lower levels of monies at the Federal Reserve Bank of Chicago and maturing low-yielding fixed rate commercial real estate loans and investments, along with higher costing time deposits.

We are projecting a federal tax rate of 17%, which encompasses continued growth in net benefits from our low income housing and historical tax credit activities along with additional transferable energy tax investments.

Expected quarterly results for non-interest income and non-interest expense are also provided for your reference. Non-interest expense projections reflect personnel investments that were made in the latter part of 2025, first quarter of 2026 and expected during the remainder of 2026 and to support expansion in Southeast Michigan as well as to support operational areas as we switch core and digital banking providers to enhance the durability, the efficiency and experience for customers and employees. One-time-type costs associated with the core and digital banking system conversion are not included.

In closing, we are very pleased with our operating results during the first quarter of 2026 and continued strong financial condition and believe we remain well positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions.

That concludes my prepared remarks. I'll now turn the call back to Ray.

Thank you, Chuck. That concludes the prepared remarks from management. We will now move to the question-and-answer portion of the call.

[Operator Instructions] Our first question comes from Brendan Nosal from Hovde Group.

Maybe just starting off here on the net interest margin. I guess this quarter came in towards the lower end of the guided range. It looks like you tempered the range for the remainder of the year by 10 basis points or so. I guess we haven't gotten any more rate cuts, and you're still not forecasting any in your outlook. So just kind of curious, what were the main drivers of that change to how you see the margin trend due to the balance of the year?

Yes. And the change -- Brendan, it's a good question. I'm glad you asked it because I wanted to make sure everybody understood that is a reflection of the change in our balance sheet mix. We are expecting -- and really because of the deposit growth that we've seen, I mean, as we talked about, as you saw in our release, we had incredibly strong deposit growth. The growth numbers themselves were incredibly strong, but that comes on the top of -- we typically lose anywhere from $80 million to $100 million in deposits in the first part of the quarter, as our commercial customers pay taxes, bonuses, partnership distributions. So typically, you don't see net growth in the first quarter.

I can show you that our customers still paid all those items but yet we were able to demonstrate very, very strong deposit growth. And that deposit growth was throughout the different types of products and the types of customers, business, public unit and personal. And so what we saw was that increase in deposits came at the same time, we saw the paydowns in the commercial loans that didn't allow for commercial loan growth. So really all of that deposit growth went to the Federal Reserve Bank of Chicago. Obviously, a lower yield than what we would have expected on the loan portfolio.

Going forward, we do expect, as I mentioned, that the margin will continue to improve pretty much at the same pace as what the expectations were originally back in January with the guidance, but we're just kind of starting at a lower spot. And I would say that we still expect deposit growth to continue at our budgeted pace, obviously, which makes for a very strong year.

We do think with our commercial loan pipeline that despite the minimal level of net growth that we had in the first quarter that we will catch back up during the last 9 months of the quarter, and get to where we expected to be. So we're kind of ending with more deposits than what we thought we were, which results in a higher balance of the Fed, which has a small compression effect on our margins.

So a lot going on there with the margin, but I think it's -- at the bottom line is just more deposits same level of loans, so those more deposit balances are going into the lower-yielding accounting at the Federal Reserve.

Okay. Chuck, that's really helpful color. Perhaps 1 more for me. just kind of pivoting. Can you just update us on the Southeast Michigan initiative you have ongoing with the new team down there? And then on a related note, any updated thoughts on opportunities to capitalize on M&A dislocation across the state?

Sure. This is Ray. We've added some commercial banking talent on the east side of the state, and they have gained some traction and are performing very well relative to our expectations, growing their book, not only on the asset side, but doing a very nice job on the liability side as well. We plan to continue to [Audio Gap]

Inside that you didn't want to keep on balance sheet.

No, that was entirely the [Audio Gap]

And do you feel that you have room to kind of grow into a loan loss reserve and let that drift a little bit lower as you get this loan growth? Or just looking for a little guidance on the provision line basically?

Yes. I think when you look at whether it's a negative, whether it's positive and over the last couple of quarters, as you mentioned, it has been negative it's been negative because of the lack of net loan growth onto our balance sheet. As you know, CECL has put banks into a corner in regards to how it calculates its loan loss reserve and how it manages it. With Mercantile having basically minimal losses since coming out of the great recession, we rely really heavily on qualitative factors. As a matter of fact, if you look at the composition of our reserve, about 60% of our reserve balance is supported by qualitative versus quantitative of course, quantitative primarily driven by lost history performance.

So it's always a battle. We like to have -- we like strong capital. We also like a very strong reserve. We're very comfortable with the balance of our reserve. Ray already mentioned it relative to our NPAs, which themselves and to your point, Damon, have been pretty pristine for a very, very long time.

So I think kind of back to your specific question, I think when we certainly expect to have given our guidance, some very strong loan growth, at least through the remainder of 2026, notwithstanding any other major impacts to our measurements within CECL, we certainly would expect a positive provision expense going forward.

The wildcard is the economic forecast on an overall basis, the American United States economy continues to do well. And so we really don't see much. We haven't seen much change in economic conditions have an impact on our reserve for quite a while now. Just a little bit of positives and minuses as we go quarter-to-quarter. We don't really see a lot of changes in our qualitative measurements. A lot of that is levels of NPA, the way that we administer portfolios, those types of things. I don't see really any changes there.

So I think the driver of our provision expense is loan growth. As long as we can keep the pristine asset quality, which we think certainly that we can. So future provision, I think, is going to be really dictated by loan growth. And for our comments this morning, we expect to have very solid loan growth for the rest of this year and certainly into the future periods as well.

Our next question comes from Nathan Race with Piper Sandler.

Chuck, just thinking about the level of cash or excess liquidity, you're looking at run rate going forward. Can you just get some light in terms of how much export liquidity you want to keep on the balance sheet maybe versus redeploying the securities portfolio. And within that context, curious if you're pretty content with the size of this book at this point, just based on the initiatives from the last several quarters. Or is kind of thought just to run with higher excess liquidity just given the loan growth guide?

Yes. I think it's a combination of both. It's a really good question. I think our securities, we're right around 16% of total assets now and the plan is to keep it there. Again, with commercial loan growth, that would drive total assets, which of case will drive the size of the securities portfolio. So we'll have to grow that in congruence with the growth and the rest of the balance sheet, primarily the commercial loan portfolio. Obviously, we love the deposit growth. We'd love to put it into the commercial loan portfolio or residential mortgage portfolio for that matter as soon as we can. But obviously, the deposit growth.

We came into the year especially with Eastern joining us with a lot of excess cash sitting at the Federal Reserve, if you will. And that only grew because of the deposit growth and lack of net loan growth in the first quarter. We think that's going to turn. But I think on an overall basis, we'll keep a higher level than historical dollars at the Federal Reserve. But I think it will -- our expectation is it will be less because we do expect to fund loan growth.

And with that, we'll have to increase somewhat the size of the securities portfolio. And where that ends with our reserve -- our balance at the Federal Reserve, it's hard to know with all those numbers. Certainly, we expect it to be quite a bit lower than what it has been. But I would say the balance -- my expectation of that balance is to be well much, much higher than historical norms. And I would say historical norm is probably closer to $80 million, maybe $100 million. So I would expect the balance to be well over $200 million at the end of the year.

Okay. Got it. That's really helpful. And Chuck, you mentioned, I think, fixed rate loan repricing is a margin tailwind as we get in the back half of this year. Can you just help us with the yield pickup that you have on that portfolio over the next few quarters?

Yes. It's based on the time frame on that is the rest of this year and into next year. And going from memory, I don't have it in front of me. I think the rate is about 5% on that portfolio, what's repricing.

And then is it fair to assume new loans on a blended basis are coming on 6.5% these days or?

Yes, upper 6% is around 7%.

Okay. Great. And then just lastly, do you have the spot rate cost of deposits in March and just generally how you're thinking about deposit costs trending if the Federal remains on pause this year?

Can you just repeat that second 1 about the cost? I don't quite get that question.

Yes. I was just wondering if you had the spot cost of the deposits in the -- in March and just how you're thinking about the trajectory of deposit costs if the Fed remains on pause this year?

I brought all this stuff with me, but I didn't bring it on a monthly basis. So I think, as I mentioned, we've seen the growth throughout almost all the categories, and we're down a little bit non-interest-bearing if you look at our balance sheet. But again, that's where a significant portion of those tax bonus payments and partnership distributions come out of.

As Ray mentioned, the Southeast Michigan, they brought almost as much deposits as they have loans. And a lot of those deposits are coming with the loan relationships, so they tend to be operating accounts, which obviously, we love.

So I would say it's a blend of all the different deposits from 0 to non-interest-bearing, 1% or 1.5% on interest checking, not much in savings. And then our money market account is in the 3s, depending on the type and the size of the balance.

So I think it's pretty well a blend. We're not looking for any -- if you look at non-maturity deposits or everything but time deposits, we're not really looking for -- we're not certainly not budgeting for any change in rates on any of those things. And I think the growth will be relatively consistent within those buckets to provide for a steady cost of those types of deposits for the rest of the year.

Okay. That's really helpful. If I could just actually sneak one more in. Could you just update us in terms of how much of expenses do you expect to come out of the run rate in the first quarter next year following the core conversion?

We're looking for some pretty sizable savings, especially in regards to the new contract on our core. It will be sizable. Maybe that's something that -- that's still something that we're calculating, trying to figure out what this new core looks like, what we need from a personnel standpoint. Maybe we can continue to work on that and give you some better guidance in July.

Our next question comes from Daniel Tamayo with Raymond James. Your line is now open. Please go ahead.

Great. Maybe just to go back to the NIM guide and the loan growth, curious if you can kind of walk us through what may be downside risk given the reduction in margin guidance we saw -- we saw it today, but you did explain it with the deposits which I get. But if the payoffs kind of remain elevated throughout the year or for the next few quarters, curious, I guess, what's driving the confidence that, that will slow. But then if they don't, what kind of impact do you think that would have on the margin and NII?

Yes. Clear, Daniel, this is Chuck. And clearly, it depends on the magnitude. I think to kind of put things in perspective, we had started to talk about -- because we saw and we were starting to report on in this conference I think at least in July or probably not even April of last year that we saw some pretty big payoffs coming. Clearly, our bankers are talking to the borrowers all the time and understanding whether they were going to put a project in the secondary market, whether they were going to sell their businesses. We usually have a pretty -- some advanced notice where we become aware of the payoffs, especially the bigger ones get everybody's attention. And that has always been that way for whatever reason, the last 3 or 4 quarters, however you want to calculate it, we have seen -- we've talked about it, a pretty high level of payoffs. They're all unrelated to each other. It's just more of a timing coincidence than anything else.

Now payoffs, refinancings to the secondary market are a normal part of what we see. And so, we do expect those to continue. But we do expect them to continue more at a normal or -- I would say, normal a typical level that you talked about and put in the release.

When we look at our pipeline report, we're not only looking at loan fundings, but we're also looking at paydowns. We look at our pipeline on a net basis and taking the same process that we've always used, that we've always reported always taken into account and managing the balance sheet, we just don't see -- maybe that could change, but we just don't see the same level of payoffs that we've seen more recently, at least for the remainder of 2026. Again, we will see some. We know there's some out there, just not to the level that we've seen.

Now having said that, as we reported, we had $180 million, and I'll call it pay downs. There's various categories there in the first quarter alone. That's just on the larger credits. Now we also have, call it, $15 million, $20 million of month just a normal amortization. You put all that together, we funded well over $200 million in commercial loans during the quarter. And that's reflective of a very strong pipeline. And our pipeline right now is even stronger than it was at the end of 2025. So we feel very confident about the level of loan fundings that we're going to have executive management team feels confident on payoffs, given the history that our commercial bankers have shown to be on top of these types of things as they work with their borrowers day in and day out.

So we feel very confident sitting here that we're going to see some strong 5% to 7% annualized growth. That's a forecast. I think the surprise would be not in the funding side, but we'd be in the payoff side. If somebody suddenly find there's a rational payoffs coming up. And we see the same level of deposit growth as we're budgeting. Yes, we would end up with a higher level of money sitting at the Federal Reserve, which would put a damper some compression on our margin.

Again, the size is going to drive, whether that's 2 basis points, 5 basis points or something like that. So I would kind of put it in kind of what I would see as maybe a normalization of some higher levels of payoffs, I would say, maybe 2 to 5 basis points of margin compression below what the guidance is not from where we are today. But that's kind of a guess as far as that 2 to 5 basis points. But hopefully, my explanation of what we would look at and what the -- what would drive the impact, hopefully made some sense for you.

No, that's helpful, Chunk. And remind us, I think last -- sorry, did you have anything else? Just remind us -- Okay. On the rate sensitivity, I know you have the table in the deck, but still not much impact from a 25 basis point rate cut perspective on your guidance?

Now. I think there's a -- we're pretty well matched on the balance sheet. We do have the repricing, as we mentioned, the commercial loan, fixed rates, the securities and even some time deposits that would reprice lower. We think that puts us in a pretty balanced position.

Okay. I guess just to go back to my original question, if you were in that position where loan growth ended up being a little bit slower than expected due to payoffs remaining elevated, would that put you in a position to utilize the buyback authorization in the remainder of the year? Or is that something that you're looking at kind of separate from the loan growth conversation?

Well, I think the loan growth is part of that. I think there's definitely other things to consider when we look at our capital position, where we want it to be relative to certainly the growth. We know that we're a growth company, we need growth to continue to enhance our earnings performance. And certainly, we want to make sure we got enough capital to support the level of growth opportunities that we see, which obviously from our comments this morning, we're very high on. So that's first and foremost.

Clearly, we would look at our stock price. The bigger the discount to what we think is appropriate. We will get a bigger appetite. We're also looking at the proposed change in risk-based capital calculations. I'm sure everybody is going through and trying to figure out what that impact would be on the capital calculations. We're also a little bit -- kind of looking to maybe understand how the investing community and the regulators are going to look at that.

Clearly, the proposed changes provide for higher capital ratios. Does that just set the new bar? Or do we really get the "spend that and use that?" Our initial calculations under a proposal put all those caveats out there. We're looking at about a -- I'm going to put a number out there, but obviously, it's going to be a ranger owned it. Our CET1 ratio would increase by about 75 basis points. in our total risk-based capital ratio by as much as 1%. So we're looking at some meaningful increases there. Clearly, that would have an impact on how we think about buying back stock. And then just all the other normal things. There's a lot going on in the world.

The American United States economy has been incredibly resilient. It usually is, but there's a lot going on. The level of uncertainty is still very, very strong and evident that's out there. So this company has always been pretty cautious when it comes to managing its capital position. But we certainly do understand and appreciate the benefits that could present itself with stock buybacks. So it's always on the table. We regularly talk to our Board about that. Obviously, we haven't bought back any in quite a while now, but it's something that's toys on the stope top.

[Operator Instructions] Our next question comes from Matthew Breese with Stephens Inc.

I just first wanted to start with securities. Maybe help me walk through the anticipated maturities and cash flows of securities for the balance of the year. And what are some of the roll off versus roll on dynamics of securities?

Yes, I'm looking at the deck trying to remember if we have that in there. I thought we do. Yes, we do have that on Slide 17, and we start talking a little bit about the portfolio there. So most of the benefit there is in our agency portfolio. And so we're looking at, I think, another $50 million this year. That's got our average rate of, I think, just under 1% that does in the dollar amounts, but also the average rate do increase over time. But if you look at where rates are today, the types of bonds that we buy today, which I would say give us a yield of, call it, around 3.5%.

I'm not sure if you look at on an annual basis if we had -- maybe if we go way out. But I would say certainly within the next 5 years, if not the next 7 years, we don't have a year where the average yield is higher than 3.5%. Now that yield -- that average yield does increase over time. Like I said, it's a little under 1% for the rest of the year. I think it's like 1.5% or so next year. and then it continues to increase. The dollars, we continue to be very diligent with a laddered approach. If you look at our mature -- not this year, but if you lay out the next 5 years, we have about $100 million a year maturing and then it slides off a little bit over that over the next 4 or 5 years. But so we have lots -- I'm being somebody base because I don't have exactly the numbers in front of me, but there is some solid repricing opportunities in that portfolio, along with the commercial loans that we talked about earlier.

So it's give or take $50 million for the year?

There's $50 million maturing this year yet, but there's $100 million maturing every year for the next 5.

Got it. Okay. And then I guess back to Nate's question on cash liquidity. The first part of my question is just around seasonality. Is there anything -- I guess, it will be determined by the deposit side of the balance sheet. But anything seasonal in the second quarter that draws down cash a little bit more than usual?

And then secondly, I think you had said we should anticipate running north of $200 million in cash by the end of the year. So is it -- we're standing at like $580 million in total cash right now, that's going to come down by a few hundred million by the end of the year. Is that the right message?

Yes. So I think from a seasonality standpoint, we talked about what happens in the first quarter, which we were able to overcome and then some. We do see some declines here in April as the final tax payments are being made. So April is usually a south a down month, not as dramatic as the first quarter, but there generally is some decline here in April. But there are really no other seasonality for the second quarter. We will see seasonality in the third quarter with our public units as they start collecting their summer taxes.

And -- but I would say that when we think about seasonality here, it's the first part of the first quarter, first part of the second quarter and throughout the third quarter. But yes, I think where the cash ends up at the Federal Reserve is anybody's guess. Again, it's going to be driven by both sides of the balance sheet, right? What continued deposit growth we get but certainly more so on the commercial lending side, residential mortgage side, trying to grow that portfolio or at least hold it steady, I should say, going forward and the growth in the securities book, as we keep that ratio at 16%. So that's all going to work out to whatever we keep at the Fed at the end of the day.

Got it. Okay. Last 1 for me. I think you had mentioned that incremental loan yields are in the high 6s, low 7s. Would love some color just on competitive conditions, both sides of balance sheet lending and deposits. And if anything is changing spread-wise?

Okay. I'll take deposits and let Ray chime in on the loan side. We have -- deposit rates have been very, very quiet. I would say, all year. Obviously, we battled the credit unions, and we won't get on that setback this morning. But I think from a banking standpoint, rates have been very consistent. We don't see a lot of specials going on right now. And I would say everybody is, in my opinion, kind of everybody is behaving what they're offering out there makes sense from what they're getting on the asset side. And the stability is relatively easy to work through.

And on the loan side, we have target spreads that we like to achieve relative to risk levels. And as we look across that continuum, there I'd say the competitive pressure there really hasn't changed for some time. It's been the normal level of competition that we've come to know and love in the banking industry.

This concludes our question-and-answer session. I would like to turn the conference back over to Ray Reitsma for closing remarks.

Thank you for your participation in today's call and for your interest in Mercantile Bank Corporation. The call has now concluded. Thank you.

This concludes our conference. Thank you for attending today's presentation.

Good morning, and welcome to the Mercantile Bank Corporation 2025 Fourth Quarter Earnings Results Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us. Today, we will cover the company's financial results for the fourth quarter of 2025. The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer; as well as Chuck Christmas, Executive Vice President and Chief Financial Officer.

Our agenda will begin with prepared remarks by both Ray and Chuck and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com.

After our prepared remarks, we will then open the call to your questions. Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business.

The company's actual results could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin, Ray?

Thanks, Nichole. Our results for 2025 continue to build on the theme of commercial expertise, generating a strong return profile. The consummation of our purchase of Eastern Richingon Bank at December 31, 2025, represents execution of our strategic objectives around deposit and loan growth and margin stability period with strong asset quality and overall financial performance. We continue to demonstrate top quartile ROE performance relative to our peers -- the following trades.

Trade number one, a strong and durable net interest margin. Over the last 5 quarters, the sulfur 90-day average rates dropped 68 basis points, while our margin increased by 2 basis points to 3.43%. This illustrates effective execution of our strategic objective to maintain a steady margin by match funding our assets and liabilities and refuse in motion that we have an asset-sensitive balance sheet despite the relatively large portion of floating rate assets.

Trade number two, very strong asset quality. As do loans remain at low levels typical of our company and 11 basis points of total loans. Nonperforming loans to total loans over the last 6 years averaged 12 basis points. The allowance for credit losses stands at 1.21% of total loans as of December 31, 2025, providing very strong coverage relative to past due and nonperforming loan loans. These numbers demonstrate our long-standing commitment the excellence in underwriting and loan administration.

Trade number three, improved on balance sheet liquidity and loan-to-deposit ratio. Our own deposit ratio stands at 91%, and compared to 98% on December 31, 2024, and 110% on December 31, 2023. Our deposit mix includes 25% noninterest-bearing deposits and 24% of lower cost deposits an increase from 20% in the prior quarter, which has contributed to the stability of our net interest margin. Our acquisition of Eastern Michigan Bank contributed positive related to these measures.

Trade number four, strong deposit and loan compounded annual growth rate. Our recent focus on deposit growth is not new to our bank. In fact, the last 5-year end periods demonstrate post compounded annual growth rate of 9.2%. Over the same time period, total loans demonstrated a compounded annual growth rate of 8.6%. Loan growth will continue to be impacted by an elevated level of loan payoffs compared to historical norms in the first quarter of 2026. However, December 31, 2025, commitments to make loans totaled $297 million, the commitments to make commercial and residential construction loans totaled $271 million. Each of these represent historically high levels. We expect that growth for 2026 will follow within the range of previously defined expectations of mid-single digits.

Trade number 5. Continued strong growth in key fee income categories. Growth in commercial deposit relationships has supported growth in treasury management services, resulting in a 19% increase in service charges on accounts during 2025. Our payroll service offerings continue to report very consistent growth and the current year's growth of 14% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of saleable loans contributing to a 6% growth in mortgage banking income compared to the respective 2024 period.

Trade number 6, stability and commercial loan portfolio mix. we have maintained discipline in our approach to commercial loan growth, maintain a 55-45 split between C&I and owner-occupied CRE loans, combined with other commercial loan segments and prudent concentration in categories such as office, retail, assisted living, hotel and automotive exposures. In some, these traits have allowed us to report a year-over-year EPS growth rate of 11%, a 1.4% return on average assets and a 14.1% and return on average equity for 2025 and an 11% increase in tangible book value per share over the last 4 quarters.

Additionally, our tangible book value per share compounded annual growth rate of 9% and and 5 years, earnings per share compounded annual growth rate of 15.1% historically places us in the top of our peer group, our proxy -- we remain excited about our recently completed combination with Eastern Michigan Financial Corporation. The integration of operations is underway, and the cultures have meshed very well in the early stages of the process. That concludes my remarks. I will now turn the call over to Chuck.

Thanks, Ray. This morning, we announced net income of $22.8 million or $1.40 per diluted share for the fourth quarter of 2025 and compared with net income of $19.6 million or $1.22 per diluted share for the fourth quarter of 2024. Net income during all of 2025 totaled $88.8 million or $5.47 per diluted share compared to $79.6 million or $4.93 per diluted share for all of 2024. Growth in net income during both time frames largely reflected increased net interest income and noninterest income, lower provision expense and reduced federal income tax expense which more than offset increased overhead costs.

Interest income on loans declined during the fourth quarter and all of 2025 compared to the prior year period, reflecting a lower yield on loans that was not fully mitigated by loan growth. Our yield on loans during the fourth quarter of 2025 was 26 basis points lower than the fourth quarter of 2024, and largely reflecting the aggregate 75 basis point decrease in the federal funds rate during the last 4 months of 2025.

Average loans totaled $4.63 billion during the fourth quarter of 2025 compared to $4.57 billion during the fourth quarter of 2024, an increase of $62 million. Interest income on securities increased during the fourth quarter in all of 2025 compared to the prior year period, reflecting growth in the securities portfolio and the reinvestment of lower-yielding maturing investments.

Interest income on other earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, declined during the fourth quarter of 2025 compared to the fourth quarter of 2024, and reflecting a lower average yield that more than offset a higher average balance. Interest income on other earning assets increased during all of 2025 compared to all of 2024 and reflecting a higher average balance that was partially offset by our lower yield. In total, interest income was $0.2 million lower and $8.7 million higher during the fourth quarter and all of 2025 compared to the respective prior year periods.

Interest expense on deposits decreased during the fourth quarter of 2025 compared to the prior year period, in large part due to a lower average cost of deposits, reflecting the aforementioned decline in the federal funds rate that more than offset growth in average deposits.

Average deposits totaled $4.83 billion during the first quarter of 2025 compared to $4.52 billion during the fourth quarter of 2024, and an increase of $302 million. The cost of deposits was down 32 basis points during the fourth quarter of 2025 compared to the fourth quarter of 2024. Conversely, interest expense on deposits increased during all of 2025 compared to all of 2024. Although the cost of deposits declined 23 basis points, growth in average deposits between the 2 periods of $483 million resulted in a net increase in interest expense on deposits.

Interest expense on the Federal Home Loan Bank of Indianapolis advances declined during the fourth quarter and all of 2025 compared to the prior year period, reflecting lower -- reflecting a lower average balance. Interest expense and other border funds declined during the fourth quarter and all of 2025 compared to the prior year period, largely reflecting lower rates on our trust preferred securities due to the lower interest rate environment. In total, interest expense was $2.9 million and $1.3 million lower during the fourth quarter of 2025 and all of 2025 compared to the respective prior year periods.

Net interest income increased $2.7 million and $10.0 million during the fourth quarter and all of 2025 compared to the respective prior year time period. impacting our net interest margin over the past couple of years has been our strategic initiative to lower the loan-to-deposit ratio, which generally entails deposit growth exceeding loan growth and using the additional monies to purchase securities. A large portion of deposit growth has been in higher-yielding money market and time deposit products, while the purchased securities provide a lower yield than loan products.

Despite that strategic initiative and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been relatively stable over the past 5 quarters, ranging from a high of 3.49% to a low of 3.41%, averaging 3.46%. We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environment on our net interest margin.

Basic funds management practices such as match funding combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities and higher rate time deposits along with scheduled rate adjustments on our residential mortgage loans, should provide for a relatively stable net interest margin in future periods. Our net interest margin increased 2 basis points during the fourth quarter of 2025 compared to the fourth quarter of 2024. Our yield on earning assets declined 28 basis points during that time period, largely reflecting the aggregate 75 basis point decline in the federal funds rate during the last 4 months of 2025 while our cost of funds declined 30 basis points, primarily reflecting lower rates paid on money market and time deposits, which more than offset an increased mix of higher cost in money market and time deposits.

While average loans increased $62 million during the fourth quarter of 2025 compared to the fourth quarter of 2024. Average deposits grew $302 million during the same time period providing a net surplus of funds totaling $240 million. We used that net surplus of funds to grow our average securities portfolio by $160 million and reduce our average Federal Home Loan Bank of Indianapolis Advances portfolio by $73 million.

We recorded a negative provision expense of $0.7 million and a provision expense of $3.2 million during the fourth quarter and all of 2025, respectively, compared to provision expense of $1.5 million and $7.4 million during the respective 2024 period. The fourth quarter negative provision expense was primarily comprised of an improved economic forecast and change the loan mix and reflects relatively low net loan growth due to larger than typical commercial loan payouts.

The full year 2025 provision expense primarily reflected a $1.9 million reserve increase related to changes in the economic forecast. The $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 factors, which were partially offset by a $2.3 million and $1.3 million reduction related to a shorter average duration of the residential mortgage loan portfolio, resulting from faster prepayment speed and changes in our baseline loss rates, respectively.

The reserve balance decreased $0.9 million during the fourth quarter of 2025, reflecting the negative $0.7 million provision expense and net charge-offs -- net loan charge-offs of $2.6 million, partially mitigated from a $2.4 million increase associated with the acquisition of Eastern. The reserve balance increased $3.7 million during all of 2025, reflecting provision expense of $3.2 million and $2.4 million increase associated with the Eastern acquisition which more than offset net loan charge-offs of $1.9 million.

The reserve balance equaled 1.21% of total loans as of year-end 2025 compared to 1.18% at year-end 2024.

Noninterest expenses were $2.9 million and $10.2 million higher during the fourth quarter and all of 2025 and compared to the respective prior year time periods. The increases during both time periods largely reflects higher salary and benefit costs, including annual merit pay increases and market adjustments. Higher data processing costs also comprised a notable portion of the increased noninterest expense levels, primarily reflecting higher transaction volumes and software support costs, along with the introduction of new cash management products and services.

Costs associated with the acquisition of Eastern totaled $1.2 million and $1.8 million during the fourth quarter and all of 2025, respectively. Allocations to the reserve for unfunded loan commitments largely reflecting a sizable increase in the level of committed and accepted commercial loans increased $1.1 million and $1.6 million during the fourth quarter and all of 2025 and compared to the respective prior year -- prior period.

Despite increased pretax income during the fourth quarter and all of 2025, compared to the respective prior year period, we were able to reduce our federal income tax expense by $0.4 million and $4.0 million, respectively. The reduction largely reflect the acquisition of transferable energy tax credits during 2025, providing for reductions in federal income tax expense of $1.0 million and $3.5 million during the fourth quarter and all of 2025, respectively. Our federal income tax expense was further reduced by net benefits associated with our low income housing and historical tax credit activities, which equals -- $0.8 million and $1.8 million during the fourth quarter of 2025, respectively.

The recording of these tax benefits resulted in fourth quarter and full year 2025 effective tax rate of about 12% and 14%, respectively. Additional acquisitions of transferable energy tax credits may be made from time to time, subject to our investment policy, tax credit availability and tax credits derived from our low-income housing and historical tax credit activities.

We remain in a strong and well-capitalized regulatory capital position. Mercantile Bank's total risk-based capital ratio was 13.8% at year-end 2025, $213 million above the minimum threshold to be categorized as well capitalized. Eastern Michigan bank's total risk-based capital ratio was 15.3% at year-end 2025, $20 million above the minimum threshold to be categorized as well capitalized. We did not repurchase share during 2025. We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow of $3.64 or almost 11% during 2025.

On Slide 26 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for 2026, with the caveat that market conditions remain volatile, making forecasting difficult. This forecast is predicated on no changes in the federal funds rate during 2026, although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it did during 2025. We are projecting loan growth in the range of 5% to 7% annualized during each quarter, which encompasses a strong commercial loan pipeline as well as expected meaningful payoffs over the next several months.

We are forecasting our first quarter 2026 net interest margin to increase from the fourth quarter of 2025 net interest margin, in large part reflecting the Eastern acquisition and further, steady increases throughout the year as we benefit from maturing relatively low-yielding fixed rate commercial real estate loans and investments, along with higher-yielding time deposits. We are projecting a federal tax rate of 17%, which encompasses continued growth and net benefits from our low-income housing and historical tax credit activities along with additional but lower levels of transferable energy tax credit investments.

Expected quarterly results for noninterest income and noninterest expense are also provided for your reference. Noninterest -- interest expense projections reflect personnel investments that were made in the latter part of 2025 and expected during 2026 to support expansion in Southeast Michigan as well as to support operational areas as we switch core and digital banking providers to enhance the durability, efficiency and experience for customers and employees. The noninterest cost projections also include quarterly core deposit intangible amortization of $0.9 million.

In closing, we are very pleased with our operating results and financial condition during 2025 and believe we remain well positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions. That concludes my prepared remarks.

I'll now turn the call back over to Ray.

Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call.

[Operator Instructions]. The first question comes from Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, Ray. Good morning, Chuck. Yes. Maybe starting on the margin guidance, Chuck. Just for clarification, I just want to make sure you do have the December rate cut and the guidance -- and then curious if you could pull out kind of the purchase accounting accretion that's baked into the increase in the first quarter. you talked a lot about kind of stability even though the forecast or the guidance is going up by about 5 basis points a quarter next year ex the rate cuts, but just curious what that core margin forecast is looking like next quarter.

Yes, confirming that we use the rates as of year-end '25 to put the projections together. The purchase accounting in the loan portfolio is about $125,000 net per quarter. I believe that's per quarter. There's also -- I don't have the numbers, but there's also a significant benefit relatively speaking, from the securities portfolio as there was a net unrealized loss in that portfolio at the time of consummation. So I would say when you look at Mercantile's legacy margin of low 3.4%. I would expect a relatively steady margin going into 2026. So kind of the difference between, say, the least -- the low maybe touching the mid- getting up to 3.55% to 3.65% in the first quarter. A lot of that is reflecting of the Eastern consummation.

Okay. That's helpful. And then I guess in terms of the assumptions baked into the margin guidance after that, the 5 basis points a quarter expansion again, ex rate cuts. Are you assuming any kind of change in noninterest-bearing concentration? If we -- I guess there's no cuts in that, but assuming we get a trend down in rates. You guys have been a little bit higher historically from a noninterest-bearing perspective. Are you assuming that in the guidance?

No, the assumption with noninterest balances is what we typically do is we tie any change in that balance to the growth in commercial loans, which is in that 5% to 7%. So I think that's reflective of probably a 6% growth in noninterest balances.

Got it. Okay. And then lastly, just a I guess just a clarification on the loan growth. You mentioned the 5% to 7% commercial. There's I guess, with the offset and potentially buybacks and any kind of runoffs in other portfolios the total number, you think closer to 5 next year for loan growth? Or is 5% to 7% still the right way to think about it?

No, I think 5% to 7% is the right way to show. We're showing commercial growth probably in the 6% to 7%. And then we're expecting residential mortgage portfolio to stay relatively steady.

Your next question comes from Brendan Nosal from Hovde Group.

I just wanted to dig into kind of the margin and balance sheet impacts of Eastern a little bit more, particularly around their securities portfolio. Just kind of curious, how much liquidity deployment of Eastern Michigan, are you baking into that margin outlook? And kind of what does that imply for the overall balance of average earning assets as we move through the year?

Yes. I think we're not using all of the excess liquidity that we're gaining from the Eastern. We're definitely using part of that. I think when you look at our overall numbers, we ended the year, including Eastern at about 91% loan-to-deposit ratio. We are expecting that to go up during the year just based on our overall strategy and what we think is going to take place in the loan portfolio. So we're operating 2 separate banks and the way that we're getting functionally the way that we're getting that money is Eastern is depositing some of their excess liquidity into Mercantile Bank, certainly keeping more than sufficient funds at the Federal Reserve for their daily liquidity needs as well. So we're definitely using part of it. But from a functionality standpoint, it's hard to use all of it. And so the banks do merge a little over a year from now.

Yes. Okay. Okay. That's helpful. One more for me, just changing topics here to Southeast Michigan. I think you mentioned in your prep remarks that there were some team adds in that market late in the year, which impacted expenses. Just can you offer some color on what you've added to date down there? And then additional appetite for team edge or lift-outs just given the M&A dislocation we're seeing in the trade?

Yes. This is Ray. We've added a lending team down there that has gotten off to a very nice start added to our backlog. And we continue to be in the market for more lending talent. Southeast Michigan is a vast area of opportunity and adding 1 team does not come anywhere near covering it. So we'd be willing to continue to add the right sorts of people to our team to accomplish our objectives there.

Your next question comes from Nathan Race with Piper Sandler.

Chuck, on the expense guide. When I look at what Eastern has been running at relative to the 4Q level, it doesn't imply that there's cost saves coming through from Eastern relative to the target laid out in the deck from last year. So just curious, is some of those cost saves being reinvested in some of the hires that were just touched on? Or can you just kind of unpack if there's any other reinvestments going on?

Yes. I think the plan from any cost saves from the Eastern acquisition on the personnel front, we're really going to be kind of later in 2027 by keeping the bank separate we really needed everybody that was part of Eastern at time of consummation to stay in very large regards. And so most of the cost saves or the cost saves associated with the Eastern are more of a 2027 event.

And I think that kind of builds on what we see for 2026 kind of touching on with the last question and raised response in regards to expanding our presence in Southeast Michigan the people that we hired in the latter part of last year, obviously continuing for a full year this year. Our desire to hire additional folks there. That's a lot of investment, and we expect solid loan growth in that market. But clearly, that will come down the road. So there will be some investment impact there. we'll definitely look at adding some additional facilities in that market as we grow out that market. I don't really expect any costs from really any significant costs in 2026 associated with that part of the expansion. That will be more of a 2027 impact.

But then tying that into -- which is also tied into the acquisition of Eastern is our switch our core processor to which will take place in February of 2027, and there'll be some pretty significant cost saves.

And just as importantly, very, very nice efficiencies internally and a better and much higher durability than what we've had with our current setup and a better experience, not only for our employees and certainly, but also for our customers. So I won't call this the year of investment, but clearly, what's being reflected in our thoughts for 2026, are those expectations. And I still expect a very solid year but the investments will be there and are laid out in our numbers.

Understood. That's really helpful. And then, Chuck, can you just update us with the Eastern in the fold now and some of that excess liquidity deployment that you alluded to earlier, what the sensitivity is around margin to any '25 cut that we would have on the short end.

Yes. We think that any changes in the interest rate environment. We think we're pretty well protected from those. As we say all the time, we want to be agnostic with changes in interest rates. We here firmly don't believe in anything, any part of our operation, but also interest rates is that hope is not a strategy. We want to be purposeful in what we do and make sure that we've got the fundamentals and the discipline to manage our balance sheet in a way that if rates go up, down or don't change, any change in the margin will be, I want to call it, nominal, but it will be mitigated in large regard.

Clearly, we want to work at strengthening the margin on an overall basis without getting away from the tenants of managing through interest rate risk. And you see some of that with our projections for the margin for the rest of this year. as we unwind some of the balance sheet from investments and loans that were made in a much lower interest rate environment. But on an overall basis, we think our margin is pretty well insulated from changes in interest rates.

Got you. And on that last point, Chuck, in looking at Slide 19, can you update us just in terms of the repricing of the -- in terms of how much of that reprices over the next 4 quarters or so?

Which part -- I was looking for the page. I missed the...

Sorry, the $2 billion in asset repricing on the bottom of Slide 19, how much of that reprices over the next 4 quarters?

Yes, I would say -- yes. I would say probably about 1/3 of it over the next year. But I think what's most important in that number is when you look at the existing yields on those assets, this year and next year, there's a lot of repricing opportunities. We had the same last year, and that carries forward this year and into next year as well. And so the assets that are fixed rate that will mature in 2028 and beyond are more likened to current rates.

Your next question comes from Damon DelMonte with KBW.

Hope you're doing well. First question just on the loan growth outlook. Fourth quarter was on an organic basis was pretty modest. Just talk a little bit about what's giving you the optimism to kind of have that 5% to 7% for an annualized number in 2026. Is it more a function of the pay downs slowing? Or is it more that the appetite from customers is moving higher?

Damon, this is Ray. The level of funding that we've had over that period of time that you referenced has been pretty solid. And as you referenced, the payoffs were high in the fourth quarter. And we expect that to continue to be true in the first quarter, but the backlog is at almost at historically high levels. So if we don't hit exactly in the first quarter, what we project will make that up in quarters after that. So we feel really comfortable with our ability to be able to originate loans -- the payoffs have been high for the last 5 quarters actually. And we expect that to settle down later in the year. And so overall, I feel pretty comfortable that we'll be able to hit that number.

Got it. Okay. That's helpful. And then just update us with your thoughts on capital management. I know there's a small amount of buybacks left things like $6.8 million. But just curious as to your thoughts with now the deals close, you're capital levels remain very strong. I was wondering what you're thinking about the buyback and any appetite as we go into '26.

Yes, Damon, this is Chuck. I would say our appetite is I would determine a stronger appetite than we've had over, say, the last 12 to 18 months. Obviously, a lot going on with our company specifically. Everybody sees the markets are in, I'll call it, turmoil almost every morning, it seems. So we've been pretty cautious in how we manage capital. But I think as we put the Eastern -- get that consummated. We see where we're at. We see the comfort with our projections on the earnings side and that continue, which is very important, the continued expectation for strong asset quality. We look at perhaps getting more into the buyback arena. Clearly, the stock price itself and multiples and that will come into play. So I don't -- I'm not making any promises, but I would say we have a bigger appetite going forward with buybacks than we've had more recently.

Got it. Okay. And then just lastly, just to clarify on the Eastern securities portfolio, did you actually liquidate that and you're reinvesting that? Or did you just market at the time of close and you carry it at a higher yield now?

Yes, it was the latter. It was marked to current market, and it's carried at a higher yield and the duration on that portfolio was relatively short. So provides us for some nice improvement on the margin especially this year and into next year.

[Operator Instructions]. Your next question comes from the line of John Rodis with Janney.

Just back to expenses, Chuck, just to be clear, so your guidance on Page 26. Minimal cost saves for this year. And then I think you said, but that does include the CDI amortization of roughly $900,000 a quarter, is that correct?

That is correct. Yes.

Okay. And then I guess as we look to next year to 2027, I know it's a long way away, but how should -- I mean, just big picture, how should we think of expenses? I mean, is it low to mid-single-digit growth and then add in some cost saves? And can you just talk about how much you would expect in cost saves next year either on a percent or dollar basis?

Yes. I think the difficulty there is what we do with personnel investments, not only in Southeast Michigan, which Ray mentioned, obviously, it's a very big market for us, but other markets as well. There are some cost saves coming from Eastern. They're not massive relative to the size and the needs that we have over there. We are expecting some meaningful reductions in the data processing area. Especially with the new contract with our new provider.

I would say we would look to put -- we'd like to save some money, but that might be a very nice avenue for us to continue to pay for, if you will, any expansion with personnel and/or facilities with being able to keep overhead relatively stable, but certainly shows some solid growth on the balance sheet side which would, of course, have the net result would be a very positive impact on net income. So you're right, it's pretty far out there, but we know there's cost saves coming in 2027. We'll just see how that has to play out. But clearly, we've always believed that this company has a lot of opportunity to grow for lots of different reasons through with life. And going forward, the environment will continue to change. But we want to make sure that we're taking advantage of the opportunities that we have, and it maybe gets a little bit lumpy from time to time as we make those investments and as we get those benefits in future periods. But there's a lot of opportunity. We're in solid markets. We have some great opportunities in the Southeast of Michigan and certainly feel very positive about what the future holds.

Okay. Okay. Thanks for your thoughts, Chuck. I appreciate it.

You're welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks.

Thank you for your participation in today's call and for your interest in Mercantile Bank. That concludes today's call.

The conference has now concluded. Thank you for attending today's presentation.

Good morning, and welcome to the Mercantile Bank Corporation 2025 Third Quarter Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us today. Today, we will cover the company's financial results for the third quarter of 2025. The team members joining me this morning include Ray Reitsma, President and Chief Executive Officer; as well as Chuck Christmas, Executive Vice President and Chief Financial Officer.

Our agenda will begin with prepared remarks by both Ray and Chuck and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com. After our prepared remarks, we will then open the call to your questions.

Before we begin, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to factors described in the company's latest Securities and Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin. Ray?

Thanks, Nichole. Our results for the third quarter of 2025 build on the theme of commercial expertise generating a strong return profile. We continue to demonstrate top quartile ROA performance relative to our peers, built upon the following traits. Trait #1, a strong and stable net interest margin. Over the last 5 quarters, the SOFR 90-day average rate has dropped 96 basis points while our margin has dropped by a mirror 2 basis points to 3.5%. This illustrates effective execution of our strategic objective to maintain a steady margin via match funding of our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large portion of floating rate assets.

Trait #2, very strong asset quality. Past due loans remain the low levels typical of our company at 16 basis points of total loans. Nonperforming loans to loans over the last 5 years plus the year-to-date period averaged 13 basis points. The allowance for credit losses stands at 1.28% of total loans as of September 30, 2025, providing very strong coverage relative to past due and nonperforming loan levels. These numbers demonstrate our long-standing commitment to excellence in underwriting and loan administration.

Trait #3, improved sheet -- on-balance sheet liquidity and loan-to-deposit ratio. Our loan-to-deposit ratio stands at 96% and compared to 102% on September 30, 2024, and 110% on December 31, 2023. Our deposit mix includes 25% noninterest-bearing deposits and 20% lower cost deposits which have contributed to the stability of our net interest margin. Our previously announced planned acquisition of Eastern Michigan Financial Corporation will continue -- or will contribute positively to each of these measures.

Trait #4, strong deposit and loan compounded annual growth rates. For the third quarter of 2025, annualized deposit growth was 9%. Our recent focus on deposit growth is not new to our bank. In fact, the last 6 year-end periods demonstrate a deposit compounded annual growth rate of 11.8%. Over the same time period, total loans demonstrate a compounded annual growth rate of 10%. From a third quarter 2025 perspective, loans contracted an annualized 7% as loan paydowns anticipated in the second half of the year were concentrated in the third quarter. We believe this contraction is a 1 quarter anomaly as of September 30, 2025 commitments to make loans totals $307 million, an all-time high, which exceeds the average of the prior 4 quarters by 32%. We expect that loan growth for 2025 in total will fall within the range of previously defined expectations of mid-single digits.

Trait #5, continued strong growth in key fee income categories. Growth in commercial deposit relationships has supported growth in treasury management services resulting in an 18% increase in service charges on accounts during the first 9 months of 2025. Our payroll service offerings continue to report very consistent growth and the current year 9-month growth of 15% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of salable loans, contributing to 12% growth in mortgage banking income during the first 9 months compared to the respective 2024 period.

Trait #6, stability in commercial loan portfolio mix. We have maintained discipline in our approach to commercial loan growth, maintaining a 55-45 split between C&I and owner-occupied CRE loans combined in all other commercial loan segments and prudent concentrations in categories such as office, retail, assisted living, hotel and automotive exposures.

In sum, these traits have allowed us to report a 20% quarter-over-quarter earnings per share growth, a 1.5% return on average assets and a 14.7% return on average equity for the third quarter of 2025 and a 13% increase in tangible book value per share over the last 4 quarters. Additionally, our 5-year tangible book value per share compounded annual growth rate of 8.4% and 5-year earnings per share compounded annual growth rate of 10.4%, each place us in the top 2 of our proxy peer group. We remain excited about the upcoming combination with Eastern Michigan Financial Corporation, which is -- which has financially attractive traits, including double-digit earnings accretion, mid-single-digit tangible book value dilution and a mid 3-year earn-back period.

That concludes my remarks. I'll now turn the call over to Chuck.

Thanks, Ray. This morning, we announced net income of $23.8 million or $1.46 per diluted share for the third quarter of 2025, compared with net income of $19.6 million or $1.22 per diluted share for the third quarter of 2024. Net income during the first 9 months of 2025 totaled $65.9 million or $4.06 per diluted share, compared with $60 million or $3.72 per diluted share for the respective prior year period.

Growth in net income during both time frames largely reflected increased net interest income and noninterest income, lower provision expense and reduced federal income tax expense which more than offset increased overhead costs. Interest income on loans was similar during the third quarter and first 9 months of 2025 compared to the prior year periods, reflecting loan growth that was mitigated by a lower yield on loans.

Average loans totaled $4.6 billion during the third quarter of 2025 compared to $4.47 billion during the third quarter of 2024, an increase of $201 million, which equates to a growth rate of over 4%. Our yield on loans during the third quarter of 2025 was 31 basis points lower than the third quarter of 2024, largely reflecting the aggregate 100-basis point decline in the federal funds rate during the last 4 months of 2024 and the additional 25-basis point decrease during late third quarter 2025.

Interest income on securities increased during the third quarter and first 9 months of 2025 compared to the prior year period, reflecting growth in the securities portfolio and the reinvestment of lower-yielding investments in a higher interest rate environment. Interest income on interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, increased during the third quarter and first 9 months of 2025 compared to the respective prior year periods, reflecting higher average balances that were partially offset by lower yields.

In total, interest income was $2.2 million and $8.9 million higher during the third quarter and first 9 months of 2025 compared to the respective prior year periods.

Interest expense on deposits decreased during the third quarter of 2025 compared to the prior year period, in large part due to a lower average cost of deposits, reflecting the aforementioned decline in the federal funds rate that more than offset growth in average deposits. Average deposits totaled $4.83 billion during the third quarter of 2025 compared to $4.34 billion during the third quarter of 2024, an increase of $489 million, which equates to a growth rate of over 11%.

The cost of deposits was down 32 basis points during the third quarter of 2025 compared to the third quarter of 2024. Conversely, interest expense on deposits increased during the first 9 months of 2025 compared to the prior year period. Although the cost of deposits declined 18 basis points, growth in average deposits between the 2 periods of $544 million, equating to a growth rate of over 13% resulted in a net increase in interest expense on deposits.

Interest expense on Federal Home Loan Bank of Indianapolis advances declined during the third quarter and first 9 months of 2025 compared to the prior year period, largely reflecting a lower average balance. And interest expense on other borrowed funds declined during the third quarter and first 9 months of 2025 compared to the prior year period, largely reflecting lower rates in our trust preferred securities due to the lower interest rate environment.

In total, interest expense was $1.5 million lower during the third quarter of 2025 and $1.6 million higher during the first month of 2025 compared to the respective prior year periods.

Net interest income increased $3.7 million and $7.3 million during the third quarter and first 9 months of 2025 compared to the respective prior year periods. Impacting our net interest margin over the last -- past couple of years has been our strategic initiative to lower the loan-to-deposit ratio, which generally entails deposit growth exceeding loan growth and using the additional monies to purchase securities. A large portion of deposit growth has been in the higher costing money market and time deposit products, while the purchased securities provide a lower yield than loan products.

But despite that strategic initiative and the aforementioned decline in the federal funds rate, our quarterly net interest margin has been in a relatively -- has been relatively steady over the past 5 quarters, ranging from a high of 3.52% to a low of 3.41%, averaging 3.48%. And our net interest margin forecast for the fourth quarter of 2025 reflects similar results.

We remain committed to managing our balance sheet in a manner that minimizes the impact of changing interest rate environment on our net interest margin. Basic funds management practices such as match funding combined with scheduled maturities of lower fixed rate commercial loans and securities and higher rate time deposits along with scheduled rate adjustments on residential mortgage loans should provide for a relatively stable net interest margin in future periods.

Our net interest margin declined 2 basis points during the third quarter of 2025 compared to the third quarter of 2024. Our yield on earning assets declined 33 basis points during that time period, largely reflecting the aggregate 100-basis point decline in the Fed funds rate during the last 4 months of 2024 and the additional 25-basis point decrease during late third quarter 2025, while our cost of funds declined 31 basis points, primarily reflecting lower rates paid on money markets and time deposits, which more than offset an increased mix of higher costing money market and time deposits.

While average loans increased $201 million or almost 5% for the third quarter of 2024 to the third quarter of 2025, average deposits grew $489 million or over 11% during the same time period, providing a net surplus of funds totaling $288 million. We used that net surplus of funds to grow our average securities portfolio by $163 million and reduced our average Federal Home Loan Bank of Indianapolis advance portfolio by $64 million. In addition, our average balance of the Federal Reserve Bank of Chicago increased $95 million.

We recorded a provision expense of $0.2 million and $3.9 million during the third quarter and first 9 months of 2025, respectively, compared to $1.1 million and $5.9 million during the respective 2024 periods. The reserve balance increased $0.8 million during the third quarter of 2025, reflecting the $0.2 million provision expense and net loan recoveries of $0.6 million, with the reserve balance increasing $4.7 million during the first 9 months of 2025, reflecting the $3.9 million provision expense and net loan recoveries of $0.8 million. The reserve balance equals 1.28% of total loans as of September 30, 2025, and compared to 1.18% at year-end 2024.

The third quarter provision expense was primarily comprised of a $2.9 million increase in specific reserve allocations and a $0.9 million net increase in qualitative factor allocations, which were largely mitigated by a $2.3 million reduction associated with higher residential mortgage and consumer loan prepayments that shortened the average lives of those portfolio segments and a $0.9 million decline from a reduction in total loans.

Noninterest expenses were $2.4 million and $7.3 million higher during the third quarter and first 9 months of 2025 compared to the respective prior year time periods. The increase largely reflects higher salary and benefit costs, including annual merit pay increases and market adjustments. Higher data processing costs also comprised a notable portion of the increased noninterest expense levels, primarily reflecting higher transaction volumes and software support costs along with introduction of new cash management products and services.

Despite increased pretax income during the third quarter and the first 9 months of 2025, compared to the respective prior year periods, we were able to reduce our federal income tax expense by $1.3 million and $3.6 million, respectively. The reductions largely reflect the acquisition of transferable energy tax credits during the second and third quarters of 2025, providing for reductions in federal income tax expense of $1 million and $2.6 million during the third quarter and first 9 months of 2025, respectively. Our federal income tax expense was further reduced by benefits associated with our low income housing and historical tax credit activities, which totaled $0.7 million and $1.2 million during the third quarter and first 9 months of 2025, respectively.

The recording of these tax benefits resulted in third quarter and year-to-date 2025 effective tax rates of 13% and 15%, respectively. We are scheduled to close on another transferable energy tax credit by the end of October, which will reduce our federal income tax expense by about $950,000. Additional acquisitions of transferable energy credits may be made from time to time, subject to our investment policy, tax credit availability, and tax credits [indiscernible] from our low-income housing and historical tax credit activities.

We remain in a strong and well-capitalized regulatory capital position. Our bank's total risk-based capital ratio was 14.3% as of September 30, 2025, about $236 million above the minimum threshold to be categorized as well capitalized. We did not repurchase shares during the first 9 months of 2025. We have $6.8 million available in our current repurchase plan. Our tangible book value per common share continues to grow, up $4.27 or almost 13% during the first 9 months of 2025. The improvement primarily reflects retained earnings growth of $48 million and a decline of $21 million and after-tax unrealized losses on securities.

On Slide 25 of the presentation, we share our latest assumptions on the interest rate environment and key performance metrics for the remainder of 2025 with the caveat that market conditions remain volatile, making forecasting difficult. This forecast is predicated on a 25 basis point reduction to the Fed funds rate on October 29. We are projecting loan growth in a range of 5% to 7% annualized during the fourth quarter.

Despite the expected federal funds rate reduction, we are forecasting our net interest margin to remain relatively steady and within the range over the past 5 quarters. And we are projecting a federal income -- federal tax rate of 15% for the quarter.

Expected quarterly results on noninterest income and noninterest expense are also provided for your reference, noting that noninterest expense projections include the assumption that the acquisition of Eastern Michigan will be concluded by the end of this year.

In closing, we are very pleased with our operating results and financial condition during the first 9 months of 2025 and believe we remain well positioned to to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions.

That concludes my prepared remarks. I'll now turn the call back over to Ray.

Thank you, Chuck. That concludes the prepared remarks from management, and we will now move to the question-and-answer portion of the call. .

[Operator Instructions] Our first question comes from Brendan Nosal with Hovde Group.

Maybe starting off here on credit quality. I think you had net recoveries in 7 of the past 8 quarters. I'm just kind of curious, where are you finding recoveries at this point in the cycle? And just given how clean the book has been for the past couple of years, like what do you think of as a normalized charge-off ratio given your credit box and portfolio mix at this point?

Well, as it relates to where they come from, we've taken a pretty conservative stance over our company's history on what we charge off, and we're fairly relentless about recovering those once we do charge them off. So some of those go back aways. And we just kind of never say dies or relates to a charge-off. As it relates to a normalized level, I'll let Chuck answer that.

Yes. I'll make 1 comment specifically on third quarter. Part of that recovery was on a loan that we charged off in the fourth quarter of last year, and that credit remains an active recovery status. We typically budget between 5 and 10 basis points of net charge-offs. I think from a historical perspective, obviously, excluding the Great Recession, that makes sense to us. .

Okay. Okay. That's helpful color. Maybe turning to the net interest and margin. Just kind of thinking conceptually about the margin a little bit beyond the fourth quarter. I guess on the 1 hand, rate cuts are maybe a modest headwind for the margin, but you're going to be putting all that liquidity from Eastern Michigan to work across next year. So how do those things balance out kind of in the direction the margin takes over the next couple of quarters?

Yes, I think you're spot on. Obviously, the acquisition will be beneficial to the net interest margin, that was clearly something that we saw and look forward to benefiting from. I think part -- as I mentioned in my prepared remarks, we do have the lower rate loans and securities that we'll continue to reprice quite a bit even if the rates do -- market rates continue to come down, there's still quite a bit of significant opportunity there to gain some interest income. And we do have time deposits that are at higher rates than current market even today.

So those will be -- everything we just talked about will be very strong tailwinds. The one headwind is the reduction of the Fed funds rate, and part of the answer to your question is just how aggressive the Fed gets. But we believe on an overall basis that regardless of what the Fed does, our net interest margin will remain relatively steady because of all those things.

Okay. And then just as a follow-up, on that lower rate loan and security repricing. Can you just size up that opportunity over the next 12 months? How much back book low rate stuff do you have coming due and at what rates?

Yes. I would say probably -- I'm going to go by memory here. So we have about $90 million in securities that have an average yield of about 1%. And we're getting about 3.75% to maybe 4% currently on that. We have about $160 million in commercial real estate loans that will mature next year. And those, I think, are at an average rate of about 4.5%. And then we also have some portfolio adjustable rate mortgage loans. I don't know off the top of my head, but there's some that are coming up for initial pricing and there's definitely some solid tailwind in those as well. .

The next question comes from Daniel Tamayo with Raymond James.

I guess first just on the paydowns. You talked a lot about it in the prepared remarks. So did I hear this right, that it was basically the paydowns that you're expecting for the back half of the year, you recognized in the third quarter? And if that's the case, how should we think about that 5% to 7% loan growth guidance? I mean, that's about where -- it's basically where you guys have been historically. Is there a chance that's elevated in the fourth quarter and then back to normal next year? Or what's the thinking around that number and how paydowns play into that?

Yes, Dan, this is Chuck, and I'll take a first stab at it. And one of the things about paydowns, as you know, some of them are coming. Generally, we get the paydowns from the sale of the assets, the underlying assets or the refinance of the loan to the secondary market, and that's especially true for multifamily. And you kind of get an idea that they're coming, but clearly, we don't have any control over that. So the timing becomes relatively suspect, but you'll see in the -- towards the end of the second quarter, the ones that we got in the third quarter, we knew they were coming. It was just a matter of at what month and in which quarter that was going to take place.

We're always getting some level of paydowns from quarter-to-quarter because of the activity of our borrowers, and that's not going to change. I think we just kind of -- like our commercial loan funding, sometimes quarter-to-quarter, it gets a little bit bigger. It's a little more lumpy as you go quarter-to-quarter. And so the same thing happens with funding. The same thing happens with payoffs as well.

As Ray mentioned, we got a very, very strong pipeline right now. The big question regards to the fourth quarter is when does all of that close? We definitely have some expected closings here in the first half of the quarter, but we also have some fundings that are expected to close towards year-end. And whether that happens in December or whether it happens in January, that's just difficult to tell.

So that's just relative to our lumpiness. And sometimes we get quarter-to-quarter that are a little bit more abnormally lumpy, if I can say that. I think in regards to the future, we're looking at continued mid-single digits of loan growth. We tried to peg that. I tried to peg that at 5% to 7% for the fourth quarter, knowing what I was just talking about, that could be a little bit off. If it's going to be off, it's probably more likely that the loan growth will be higher than that with a lot of that coming right at the quarter end. But as we start to prepare our budget, we really haven't started doing a lot with that yet. Again, that the higher end of maybe 5% to 7%, maybe 6% to 8% is kind of what we're thinking about for next year.

Okay. Very helpful. And then, I guess, taking a look at the expenses, you're a little bit higher in the third quarter than I was looking for, and then the guidance takes a step up from that. Just curious if there's anything unexpected or unusual in the expense base, or if that's a relatively clean number putting aside the acquisition to look at going into the fourth quarter -- I mean, '26. Sorry.

Yes, Danny. I would say the third quarter, except for the ones that we highlighted that the acquisition costs and the contribution to our foundation, I think there's definitely -- I think those are good run rates if you make those 2 adjustments. But I will say in the guidance that we gave for the fourth quarter, that includes about $1 million in acquisition costs and that makes the assumption that the acquisition is closed by the end of this quarter.

Okay. So that includes $1 million of acquisition. All right. That's helpful. And that brings things back to kind of where we thought they were. Okay. I appreciate it. I was going to -- so there's nothing on the tax line that is factoring in with the credits that flows through expenses now, right? That doesn't impact that?

Yes. The tax things that we talk about are just the impact on the federal income tax line item, they don't impact overhead. .

The next question comes from Damon DelMonte with KBW.

Just a follow-up on the expense question there. Can you just remind us, Chuck, kind of the timing or the cadence of when you expect to realize the cost saves as far as like systems conversion and kind of where you can really see some of that leverage from the cost savings from the [ EFIN ] deal?

Yes. So there's obviously 2 big things going on there. And there will be some cost saves next year relative to the Eastern acquisition, although quite frankly, most of the cost saves are going to start taking place in 2027. We're planning on the core merger -- the core conversion, I should say, will be in February of 2027. And until that time, we'll actually be a 2-bank holding company with Mercantile and Eastern both running -- continuing to run as they are today. .

So from a day-to-day operations standpoint, the cost saves are really a 2027 event. Now with the merger itself or the parent companies, there'll definitely be some cost saves, some overhead cost saves there. But as we talked about with the announcement is that the cost saves are going to be a little bit longer than typical because of the delay in the merging of the 2 banks together themselves. And then like I said, the core conversion is set for February of 2027.

There will be some costs that we'll expense in 2026 relative to the preparation for that. We'll definitely highlight that in the income statement as it comes through. But once the conversion takes place, there'll be some pretty significant savings as we go forward from that. There's going to be a little bit of a mis-timing there. As we prepare for the core conversion already started, but definitely through next year, there'll be some upfront costs, but the savings thereafter will be significantly higher than those upfront costs.

Got it. Great. Appreciate that color. And with regards to the tax rate, how do you think about '26 if like you don't have any more purchased transferable tax credits? Or do you expect there to be some in '26 that would impact that number? .

Yes. So Damon, as I mentioned, we're just starting to get into the tax rate. I think if you said you're not going to do any energy credits that's probably going to be somewhere around an 18%, maybe 17.5%, somewhere in there. Don't quote me on that. But we are planning on doing some additional energy tax credits, and right now, the -- we're closing one, I think, later this week or next week. They're still available. Obviously, there's a lot of due diligence that needs to go through that process. And we do have capacity to do them next year. We are planning on doing that next year. We'll leave the budget for that. If we're able to maximize what we can do from a tax perspective, our tax rate will probably be closer to 16%.

Got it. Okay. Great. And then just lastly, obviously, credit trends are pretty positive here. But as we think about the provision and growth kind of coming back online here in the fourth quarter, we kind of use the first and second quarter as a good barometer for what we could look for, for a quarterly provision in the fourth quarter?

Yes, I think that's pretty good. Obviously, the credit quality remains very strong. And we're always chasing some credit [indiscernible] and bad times, but we continue to do that and establish specific reserves when we think that's appropriate to do. .

The prepayment speeds on the mortgage loans, which obviously had an impact in the third quarter, that's an annual event for us for the most part. We look at it each quarter, but in general, we look at it comprehensively once a year. So not -- if rates change dramatically, we see some significant changes in prepayments from quarter-to-quarter, we'll definitely address it. But I would say on an overall basis, taking into account our asset quality and our growth expectations. I think your comment is accurate.

The next question comes from Nathan Race with Piper Sandler.

Going back to the margin discussion. Curious how aggressive you guys can be in terms of reducing deposit rates on the $3.8 billion in funding that you call out on Slide 18. And if you could mention, Chuck, maybe what the spot rate of deposits were at the end of the quarter relative to the [indiscernible] fall in cost in 3Q?

Yes, a lot of numbers there. I think 1 of the things that we have done, and we've done this as part of bringing in money market accounts, which obviously, we've seen a lot of growth in is we've told the depositors that we change rates in that product relative to the change in rates in the Fed funds rate. So there's been no surprises there. As a matter of fact, some of those deposit accounts actually legally are tied to the Fed funds rate, but that's how we manage all of the products within the money market account.

So we've been -- we would continue to either increase the basis point for basis point or reduce the basis point for basis point, at least into the near future based on changes in the Fed funds rate. So that's immediate. So it matches up well with the -- any changes -- with the changes that would happen on our commercial loans relative to any changes that take place with the Fed funds rate.

So some solid matching there. Time deposits, a vast majority of our time deposits mature within 1 year. And I would say, based on rates today, that's about 50 basis points on average of a reduction in time deposits. So that would take into account the expected of next week's cut. And then most of the rest of the benefit is on the asset side.

Okay. Great. And obviously, there was a notable M&A transaction involving 2 large competitors in your home state there. So just curious, bigger picture, where you may see opportunities either to maybe add production talent or just add some high-quality commercial clients over the next couple of years as that integration unfolds? .

Yes. I mean historically, combinations of those types have been fertile ground for us in terms of developing business and attracting more talent. And how this 1 plays out remains to be seen, but that has been the historical pattern.

Okay. Understood. And then 1 last one. I think you called out a $3 million specific allocation on the commercial credit that moved to nonperforming in 2Q. Just curious, expectations on potential loss there and timing as well, just given that specific allocation.

Yes. It's really too early to tell. And it's a process we're working through and it has our full attention. But as we get further into it, we'll make the decisions on those scores that are appropriate.

I will add that we've been very aggressive in putting specific allocations against that credit. .

Yes.

[Operator Instructions] Our next question comes from Brendan Nosal with Hovde Group.

Just 1 or 2 follow-ups here. I hate to beat the dead horse, on the expense number for next quarter. I just want to make sure I get the pieces -- does that number for the fourth quarter that you're providing include a partial quarter of run rate expenses from Eastern? Or is it just the merger charges?

No, just the merger charges, we're basically planning for a year-end consummation, so there will be no income statement from Eastern on our numbers. So the only thing would be there is about $1 million -- anticipated $1 million or so basically closing costs. .

Okay. Perfect. And then just 1 on fee income, just because it hasn't been asked about yet. The debit and credit -- sorry, the debit and credit card income line was up like 30%, both linked quarter and year-over-year. Just kind of curious if there's anything funky going on in that line item this quarter and kind of where you expect that particular number to come in versus this quarter's $3.1 million?

Those numbers sound a little high to us as far as the increases go. I would say, just in general, on the card program, it continues to grow quite well. It's designed primarily for our commercial customers. It's a product that's well received and most importantly, well used. That's very much -- that line item is very much a volume-driven line item. And so the more that we can sell, but also ensuring that our -- that it's a solid product and 1 that our customers can and want to use, that's also very important because, again, it is a transaction-driven line that's been doing very well for us. And as we continue to get penetration of those programs into our existing base and of course, with the new growth, especially on the C&I side, plenty of opportunities to continue to grow that line item.

This concludes our question-and-answer session. I would like to turn the conference back over to Ray Reitsma for any closing remarks.

We want to thank you for your participation in today's call and for your interest in Mercantile Bank, and that concludes the call. Thank you. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.