Note 2:   Investment Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities available for sale and held to maturity were as follows:

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Accrued interest on securities available for sale totaled $4.3 million at March 31, 2026 and $3.8 million at December 31, 2025, and is excluded from the estimate of credit losses.

Accrued interest on securities held to maturity totaled $4.5 million at March 31, 2026 and $5.0 million at December 31, 2025, and is excluded from the estimate of credit losses.

The amortized cost and fair value of securities available for sale at March 31, 2026 and December 31, 2025, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may

have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

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During the three months ended March 31, 2026 and 2025, no securities available for sale were sold.

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The following tables show the Company’s gross unrealized losses and fair value of the Company’s investment securities with unrealized losses, for which an ACL has not been recorded, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2026 and December 31, 2025.

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Allowance for Credit Losses

There were no credit-related factors underlying unrealized losses on available for sale securities at March 31, 2026 and December 31, 2025, accordingly no allowance for credit losses has been recorded. Furthermore, unrealized losses on the Company’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is attributable to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach maturity and/or the interest rate environment returns to conditions similar to when these securities were purchased.

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Securities held to maturity are primarily comprised of non-Agency mortgage-backed senior securities secured by multi-family, single-family or healthcare properties, and Agency mortgage-backed securities secured by multi-family properties. The Agency securities held to maturity are Ginnie Mae mortgage-backed securities and backed by the full faith and credit of the U.S. government and have an implicit or explicit government guarantee. Accordingly, no allowance for credit losses has been recorded for these securities.

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For non-Agency mortgage-backed senior securities, qualitative factors are evaluated, including the timeliness of principal and interest payments under the contractual terms of the securities, as well as the investment ratings assigned to the securities by third parties and their qualification to be pledged to FHLB as collateral. In the event credit stress in the underlying loans is identified in any single security, risk grades and collateral values are evaluated to determine whether Merchants Bank has exposure to credit losses.

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The Company has a held to maturity, non-Agency, mortgage-backed security with an amortized cost value of $394.8 million and fair value of $394.0 million at March 31, 2026, acquired via a mortgage securitization transaction facilitated by the Company, which has experienced delinquencies in some of the underlying loans. As of March 31, 2026, 36% of the portfolio was delinquent. Additionally, the security is a senior tranche that has credit protection from the first 17.9% of losses. The Company continues to receive timely interest payments on this security, which was current as of March 31, 2026. The Company is not expected to have credit losses based on the loan-to-value of the underlying loans, its credit protection and expected cash flows. However, given the delinquencies on some of the underlying loans, the Company has classified the security as Special Mention as of March 31, 2026. This same security had an amortized cost value of $438.4 million and fair value of $437.5 million and was also classified as Special Mention at December 31, 2025. All other securities held to maturity were classified as Pass as of March 31, 2026 and December 31, 2025. No allowance for credit losses were recorded for this, or any other non-Agency security, as of March 31, 2026 and December 31, 2025. See Note 4: Loans and Allowance for Credit Losses on Loans for more information on the definitions of risk classifications for both loans and securities.

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