Regulatory Matters

3 Months Ended

Mar. 31, 2026

Note 18: Regulatory Matters

The Company and Merchants Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by federal and state banking regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Merchants Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Merchants Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Merchants Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, and other factors. Furthermore, the Company’s and Merchants Bank’s regulators could require adjustments to regulatory capital not reflected in these unaudited condensed consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Merchants Bank to maintain minimum amounts and ratios (set forth in the table below). Management believes that, as of March 31, 2026 and December 31, 2025, the Company and Merchants Bank met all capital adequacy requirements.

As of March 31, 2026 and December 31, 2025, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or Merchants Bank’s category.

The Company’s and Merchants Bank’s actual capital amounts and ratios are presented in the following tables.


					Minimum
					Amount to be Well				Minimum Amount
					Capitalized with				To Be Well
	Actual				Basel III Buffer⁽¹⁾				Capitalized⁽¹⁾
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
March 31, 2026
Total capital⁽¹⁾ (to risk-weighted assets)
Company	$	2,408,656	12.8	%	$	1,980,993	10.5	%	$	—	N/A	%
Merchants Bank		2,335,139	12.4	%		1,979,758	10.5	%		1,885,483	10.0	%
Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		2,322,134	12.3	%		1,603,661	8.5	%		—	N/A	%
Merchants Bank		2,248,617	11.9	%		1,602,661	8.5	%		1,508,387	8.0	%
Common Equity Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		1,770,844	9.4	%		1,320,662	7.0	%		—	N/A	%
Merchants Bank		2,248,617	11.9	%		1,319,838	7.0	%		1,225,564	6.5	%
Tier I capital⁽¹⁾ (to average assets)
Company		2,322,134	12.3	%		947,199	5.0	%		—	N/A	%
Merchants Bank		2,248,617	11.9	%		944,081	5.0	%		944,081	5.0	%

(1)

As defined by regulatory agencies.



					Minimum
					Amount to be Well				Minimum Amount
					Capitalized with				To Be Well
	Actual				Basel III Buffer⁽¹⁾				Capitalized⁽¹⁾
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
December 31, 2025
Total capital⁽¹⁾ (to risk-weighted assets)
Company	$	2,365,600	13.6	%	$	1,822,759	10.5	%	$	—	N/A	%
Merchants Bank		2,320,227	13.4	%		1,821,535	10.5	%		1,734,795	10.0	%
Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		2,272,014	13.1	%		1,475,567	8.5	%		—	N/A	%
Merchants Bank		2,226,641	12.8	%		1,474,576	8.5	%		1,387,836	8.0	%
Common Equity Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		1,720,724	9.9	%		1,215,172	7.0	%		—	N/A	%
Merchants Bank		2,226,641	12.8	%		1,214,357	7.0	%		1,127,617	6.5	%
Tier I capital⁽¹⁾ (to average assets)
Company		2,272,014	11.5	%		990,358	5.0	%		—	N/A	%
Merchants Bank		2,226,641	11.3	%		987,284	5.0	%		987,284	5.0	%

(1)

As defined by regulatory agencies.

Memorandum of Understanding

On June 30, 2025, Merchants Bank entered into a confidential MOU with the FDIC and IDFI. While the contents of the MOU were confidential under IDFI and FDIC regulations, certain provisions, with the authorization of the IDFI and FDIC, are summarized below. The MOU was an informal administrative agreement among Merchants

Bank, FDIC, and IDFI pursuant to which Merchants Bank agreed to take various actions and enhance specific areas of Merchants Bank’s operations. In particular, Merchants Bank agreed to maintain certain capital thresholds, manage asset concentrations, and implement certain plans regarding Merchants Bank’s operations and strategy to mitigate risk of certain assets, which it implemented. As of December 31, 2025, and as of each of the reporting periods beginning on or after December 31, 2024, Merchants Bank’s capital exceeded the levels agreed to in its MOU and Merchants Bank was within the asset concentration limits agreed to in the MOU.

Additionally, under its MOU, if Merchants Bank’s capital ratios fell below the minimums agreed to, Merchants Bank was not permitted to pay dividends without the FDIC and IDFI’s prior consent.

During the three months ended March 31, 2026, the MOU was terminated, following progress made by management in addressing the MOU provisions.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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