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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 000-26719

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan	38-3360865
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

310 Leonard Street, NW, Grand Rapids, MI 49504

(Address of principal executive offices) (Zip Code)

(616) 406-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MBWM	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At October 24, 2025, there were 16,253,600 shares of common stock outstanding.

Table of Contents

MERCANTILE BANK CORPORATION

INDEX

PART I.	Financial Information	Page No.

	Item 1. Financial Statements

	Consolidated Balance Sheets – September 30, 2025 (Unaudited) and December 31, 2024	1

	Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2025 and September 30, 2024	2

	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and Nine Months Ended September 30, 2025 and September 30, 2024	3

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and Nine Months Ended September 30, 2025 and September 30, 2024	4

	Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2025 and September 30, 2024	8

	Notes to Consolidated Financial Statements (Unaudited)	10

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	62

	Item 4. Controls and Procedures	64

PART II.	Other Information

	Item 1. Legal Proceedings	65

	Item 1A. Risk Factors	65

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66

	Item 3. Defaults Upon Senior Securities	66

	Item 4. Mine Safety Disclosures	66

	Item 5. Other Information	66

	Item 6. Exhibits	67

	Signatures	68

Table of Contents

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30,			December 31,
(Dollars in thousands)	2025			2024
ASSETS
Cash and due from banks	$	58,593		$	56,991
Interest-earning deposits		418,426			336,019
Total cash and cash equivalents		477,019			393,010

Securities available for sale		855,138			730,352
Federal Home Loan Bank stock		21,513			21,513
Mortgage loans held for sale		17,433			15,824

Loans		4,615,160			4,600,781
Allowance for credit losses		(59,129	)		(54,454	)
Loans, net		4,556,031			4,546,327

Premises and equipment, net		56,155			53,427
Bank owned life insurance		94,848			93,839
Goodwill		49,473			49,473
Other assets		180,877			148,396
Total assets	$	6,308,487		$	6,052,161

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	1,182,775		$	1,264,523
Interest-bearing		3,629,038			3,433,843
Total deposits		4,811,813			4,698,366

Securities sold under agreements to repurchase		251,499			121,521
Federal Home Loan Bank advances		346,221			387,083
Subordinated debentures		50,844			50,330
Subordinated notes		89,571			89,314
Accrued interest and other liabilities		100,909			121,021
Total liabilities		5,650,857			5,467,635

Commitments and contingent liabilities (Note 9)

Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		0			0
Common stock, no par value; 40,000,000 shares authorized; 16,253,544 shares issued and outstanding at September 30, 2025 and 16,146,374 shares issued and outstanding at December 31, 2024		303,463			299,705
Retained earnings		382,679			334,646
Accumulated other comprehensive income (loss)		(28,512	)		(49,825	)
Total shareholders’ equity		657,630			584,526
Total liabilities and shareholders’ equity	$	6,308,487		$	6,052,161

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
(Dollars in thousands except per share amounts)	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024

Interest income
Loans, including fees	$	75,040	$	75,316	$	220,994	$	219,405
Securities, taxable		5,041		3,140		13,961		8,241
Securities, tax-exempt		1,259		1,056		3,611		3,001
Interest-earning deposits		4,303		3,900		9,374		8,369
Total interest income		85,643		83,412		247,940		239,016

Interest expense
Deposits		26,817		27,588		77,735		74,522
Short-term borrowings		1,974		2,219		5,656		5,631
Federal Home Loan Bank advances		2,895		3,218		8,689		9,868
Subordinated debt and other borrowings		1,955		2,095		5,831		6,270
Total interest expense		33,641		35,120		97,911		96,291

Net interest income		52,002		48,292		150,029		142,725

Provision for credit losses		200		1,100		3,900		5,900

Net interest income after provision for credit losses		51,802		47,192		146,129		136,825

Noninterest income
Service charges on deposit and sweep accounts		2,064		1,753		5,871		4,976
Mortgage banking income		3,066		3,325		9,686		8,690
Credit and debit card income		2,371		2,257		6,922		6,644
Interest rate swap fees		377		389		1,687		2,494
Payroll services income		825		713		2,648		2,295
Earnings on bank owned life insurance		858		449		1,961		2,058
Other income		827		781		1,777		3,060
Total noninterest income		10,388		9,667		30,552		30,217

Noninterest expense
Salaries and benefits		21,094		20,292		61,362		56,442
Occupancy		2,122		2,146		6,395		6,655
Furniture and equipment depreciation, rent and maintenance		846		938		2,458		2,790
Data processing costs		3,945		3,437		11,315		10,142
Charitable foundation contributions		300		0		306		707
Acquisition costs		606		0		628		0
Other expense		5,837		5,490		16,769		15,247
Total noninterest expense		34,750		32,303		99,233		91,983

Income before federal income tax expense		27,440		24,556		77,448		75,059

Federal income tax expense		3,682		4,938		11,535		15,092

Net income	$	23,758	$	19,618	$	65,913	$	59,967

Basic earnings per share	$	1.46	$	1.22	$	4.06	$	3.72
Diluted earnings per share	$	1.46	$	1.22	$	4.06	$	3.72

Average basic shares outstanding		16,249,267		16,138,320		16,229,243		16,126,706
Average diluted shares outstanding		16,249,267		16,138,320		16,229,243		16,126,706

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
(Dollars in thousands)	September 30, 2025			September 30, 2024			September 30, 2025			September 30, 2024


Net income	$	23,758		$	19,618		$	65,913		$	59,967

Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale		9,182			21,682			26,979			18,192
Tax effect of unrealized holding gains (losses) on securities available for sale		(1,928	)		(4,553	)		(5,666	)		(3,820	)
Other comprehensive income (loss), net of tax		7,254			17,129			21,313			14,372

Comprehensive income (loss)	$	31,012		$	36,747		$	87,226		$	74,339

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

								Accumulated
								Other			Total
	Preferred		Common		Retained			Comprehensive			Shareholders’
(Dollars in thousands except per share amounts)	Stock		Stock		Earnings			Income (Loss)			Equity

Balances, July 1, 2025	$	0	$	302,294	$	364,991		$	(35,766	)	$	631,519

Employee stock purchase plan (1,071 shares)				46								46

Dividend reinvestment plan (3,902 shares)				184								184

Stock grants to directors for retainer fees (197 shares)				10								10

Stock-based compensation expense				929								929

Cash dividends ($0.38 per common share)						(6,070	)					(6,070	)

Net income for the three months ended September 30, 2025						23,758						23,758

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect									7,254			7,254

Balances, September 30, 2025	$	0	$	303,463	$	382,679		$	(28,512	)	$	657,630

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

								Accumulated
								Other			Total
	Preferred		Common		Retained			Comprehensive			Shareholders’
(Dollars in thousands except per share amounts)	Stock		Stock		Earnings			Income (Loss)			Equity

Balances, January 1, 2025	$	0	$	299,705	$	334,646		$	(49,825	)	$	584,526

Employee stock purchase plan (1,669 shares)				73								73

Dividend reinvestment plan (13,159 shares)				589								589

Stock grants to directors for retainer fees (10,007 shares)				444								444

Stock-based compensation expense				2,652								2,652

Cash dividends ($1.12 per common share)						(17,880	)					(17,880	)

Net income for the nine months ended September 30, 2025						65,913						65,913

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect									21,313			21,313

Balances, September 30, 2025	$	0	$	303,463	$	382,679		$	(28,512	)	$	657,630

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

								Accumulated
								Other			Total
	Preferred		Common		Retained			Comprehensive			Shareholders’
(Dollars in thousands except per share amounts)	Stock		Stock		Earnings			Income (Loss)			Equity

Balances, July 1, 2024	$	0	$	297,591	$	306,804		$	(53,244	)	$	551,151

Employee stock purchase plan (256 shares)				11								11

Dividend reinvestment plan (4,531 shares)				204								204

Stock-based compensation expense				898								898

Cash dividends ($0.36 per common share)						(5,700	)					(5,700	)

Net income for the three months ended September 30, 2024						19,618						19,618

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect									17,129			17,129

Balances, September 30, 2024	$	0	$	298,704	$	320,722		$	(36,115	)	$	583,311

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

								Accumulated
								Other			Total
	Preferred		Common		Retained			Comprehensive			Shareholders’
(Dollars in thousands except per share amounts)	Stock		Stock		Earnings			Income (Loss)			Equity

Balances, January 1, 2024	$	0	$	295,106	$	277,526		$	(50,487	)	$	522,145

Employee stock purchase plan (866 shares)				35								35

Dividend reinvestment plan (15,521 shares)				609								609

Stock grants to directors for retainer fees (11,316 shares)				423								423

Stock-based compensation expense				2,531								2,531

Cash dividends ($1.06 per common share)						(16,771	)					(16,771	)

Net income for the nine months ended September 30, 2024						59,967						59,967

Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect									14,372			14,372

Balances, September 30, 2024	$	0	$	298,704	$	320,722		$	(36,115	)	$	583,311

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months			Nine Months
	Ended			Ended
(Dollars in thousands)	September 30, 2025			September 30, 2024

Cash flows from operating activities
Net income	$	65,913		$	59,967
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization/accretion		4,408			8,147
Provision for credit losses		3,900			5,900
Stock-based compensation expense		2,652			2,531
Stock grants to directors for retainer fees		444			423
Proceeds from sales of mortgage loans held for sale		313,224			269,166
Origination of mortgage loans held for sale		(305,622	)		(271,789	)
Net gain from sales of mortgage loans held for sale		(9,211	)		(8,030	)
Net gain from sales and valuation write-downs of foreclosed assets		0			(290	)
Net gain from sale and write-down of former bank premises		0			(83	)
Earnings on bank owned life insurance		(1,961	)		(2,058	)
Net loss on instruments designated at fair value and related derivatives		155			148
Net change in:
Accrued interest receivable		(1,445	)		(2,608	)
Other assets		(41,402	)		(24,233	)
Accrued interest payable and other liabilities		(18,731	)		4,069
Net cash from operating activities		12,324			41,260

Cash flows from investing activities
Loan originations and payments, net		(13,604	)		(248,484	)
Purchases of securities available for sale		(143,155	)		(104,523	)
Proceeds from maturities, calls and repayments of securities available for sale		48,574			36,542
Proceeds from sales of foreclosed assets		0			290
Proceeds from sales of fomer bank premises		0			283
Proceeds from bank owned life insurance claims		1,062			1,357
Net purchases of premises and equipment and lease activity		(6,537	)		(7,940	)
Net cash for investing activities		(113,660	)		(322,475	)

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Nine Months			Nine Months
	Ended			Ended
(Dollars in thousands)	September 30, 2025			September 30, 2024

Cash flows from financing activities
Net increase in time deposits		29,341			93,620
Net increase in all other deposits		84,106			461,360
Net increase (decrease) in securities sold under agreements to repurchase		129,978			(8,798	)
Payoffs and paydowns of Federal Home Loan Bank advances		(60,862	)		(60,827	)
Proceeds from Federal Home Loan Bank advances		20,000			10,000
Employee stock purchase plan		73			35
Dividend reinvestment plan		589			609
Payment of cash dividends to common shareholders		(17,880	)		(16,771	)
Net cash from financing activities		185,345			479,228

Net change in cash and cash equivalents		84,009			198,013
Cash and cash equivalents at beginning of period		393,010			130,533
Cash and cash equivalents at end of period	$	477,019		$	328,546

Supplemental disclosures of cash flows information
Cash paid during the period for:
Interest	$	98,010		$	95,035
Federal income tax		0			16,650

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the nine months ended September 30, 2025 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Community Partners, LLC ("MCP") and Mercantile Bank (“our bank”) and its subsidiaries, including Mercantile Insurance Center, Inc. These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended September 30, 2025 should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2024.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Recent Events: On July 22, 2025, we entered into a definitive merger agreement ("Merger Agreement") with Eastern Michigan Financial Corporation (“EFIN”), pursuant to which EFIN will merge with and into an acquisition subsidiary of Mercantile, with the acquisition subsidiary as the surviving corporation (the “Merger”). Following the Merger, Mercantile will operate for a period of time as a two-bank holding company. The newly acquired Eastern Michigan Bank will operate alongside Mercantile’s existing bank, Mercantile Bank, until the first quarter of 2027 at which time Mercantile plans to consolidate Eastern Michigan Bank into Mercantile Bank.

Under the terms of the agreement, each outstanding share of EFIN’s common stock will be converted into the right to receive $32.32 in cash and 0.7116 shares of Mercantile common stock, for an aggregate transaction value of approximately $90.3 million based upon the closing price of Mercantile's common stock of $43.14 on October 16, 2025.

The Merger Agreement has been approved by the boards of directors of each of Mercantile and EFIN. The parties anticipate that the Merger will close in the fourth quarter of 2025, subject to receiving approval of the Merger Agreement by EFIN’s shareholders and applicable regulatory agencies, and the fulfillment of other customary closing conditions.

Operating Segments: We conduct our operations through a single business segment, which derives interest and noninterest income through our banking products and services and investment securities. All of our income relates to our operations in the United States. Segment assets represent total assets on our Consolidated Balance Sheets and segment net income represents net income on our Consolidated Statements of Income.

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately 277,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2025. Approximately 311,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and nine months ended September 30, 2024.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Debt Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities available for sale consist of bonds which might be sold prior to maturity due to a number of factors, including changes in interest rates, prepayment risks, yield, availability of alternative investments or liquidity needs. Debt securities classified as available for sale are reported at their fair value. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security’s amortized cost basis is written down to fair value through income with the establishment of an allowance. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income (loss).

Changes in the allowance are recorded as provisions for (or reversals of) credit losses. Losses are charged against the allowance when the collectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2025, and December 31, 2024, there was no allowance related to the available for sale debt securities portfolio.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums on debt securities are amortized to the initial call date, if applicable, or to the maturity date, on the level-yield method. Discounts on debt securities are accreted to the maturity date on the level-yield method. Premiums and discounts on mortgage-backed securities are amortized or accreted based on anticipated prepayments on the level-yield method. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Federal Home Loan Bank of Indianapolis (“FHLBI”) stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Net unamortized deferred loan costs amounted to $1.7 million and $2.2 million at September 30, 2025, and December 31, 2024, respectively.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

Accrued interest is included in other assets in the Consolidated Balance Sheets. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of September 30, 2025 and December 31, 2024, we determined that the fair value of our mortgage loans held for sale totaled $17.7 million and $16.0 million, respectively.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price, which includes a gain or loss on the interest rate commitment coverage position, and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. Market rate risk on interest rate commitments with borrowers prior to loan closing is mitigated through forward commitments referred to as to-be-announced mortgage-backed securities. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income.

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(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Credit Losses (“allowance”): The allowance is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance is increased by a provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged-off against the allowance when we believe the uncollectability of a loan balance is confirmed. The allowance is measured on a collective pool basis when similar risk characteristics exist and on an individual basis when a loan exhibits unique risk characteristic which differentiate the loan from other loans within the loan segments. Loan segments are further discussed in Note 3 - Loans and Allowance for Credit Losses.

The “remaining life methodology” is utilized for substantially all loan pools. This non-discounted cash flow approach projects an estimated future amortized cost basis based on current loan balance and repayment terms. Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss. The baseline lifetime loss is adjusted for changes in macroeconomic conditions over the reasonable and supportable forecast and reversion periods via a series of macroeconomic forecast inputs, such as gross domestic product, unemployment rates, interest rates, credit spreads, stock market volatility and property price indices, to quantify the impact of current and forecasted economic conditions on expected loan performance.

Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. The contractual term generally excludes potential extensions, renewals and modifications.

Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. We are not required to develop and use our own economic forecast model, and we elect to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.

During each reporting period, we also consider the need to adjust the historical loss rates as determined to reflect the extent to which we expect current conditions and reasonable and supportable economic forecasts to differ from the conditions that existed for the period over which the historical loss information was determined. These qualitative adjustments may increase or decrease our estimate of expected future credit losses.

Our qualitative factors include:

o Changes in lending policies and procedures

o Changes in the nature and volume of the loan portfolio and in the terms of loans

o Changes in the experience, ability and depth of lending management and other relevant staff

o Changes in the volume and severity of past due loans, nonaccrual loans and adversely classified loans

o Changes in the quality of the loan review program

o Changes in the value of underlying collateral dependent loans

o Existence and effect of any concentrations of credit and any changes in such

o Effect of other factors such as competition and legal and regulatory requirements

o Local or regional conditions that depart from the conditions and forecasts for the entire country

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(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

The estimation of future credit losses should reflect consideration of all significant factors that affect the collectability of the loan portfolio at each evaluation date. While our methodology considers both the historical loss rates as well as the traditional qualitative factors, there may be instances or situations where additional qualitative factors need to be considered. Due to the relatively low level of loan losses during the look-back period, we have established a historical loss information factor that has been included in the qualitative factors that are included in the estimation of future credit losses in the periods presented.

We recorded a provision for credit losses of $3.9 million and $5.9 million during the nine months ended September 30, 2025 and 2024, respectively. The provision expense recorded during the first nine months of 2025 primarily reflected a net increase in specific allocations, changes to the economic forecast, and a net increase in qualitative factors stemming from changes in the makeup of the loan portfolio. The impacts of these factors were partially offset by reductions in the reserve related to faster residential mortgage and consumer loan prepayment speeds and the associated reduced average lives of the portfolios and changes in baseline loss rates. The provision expense recorded during the first nine months of 2024 primarily reflected a specific allocation for a nonperforming commercial loan relationship, allocations necessitated by net loan growth, a change in the volume and severity of past due loans, nonaccrual loans and adversely classified loans for commercial and industrial loans and a change in the historical loss information qualitative factor for commercial loans, which more than offset the impacts of an improved economic forecast and changes to the loan portfolio composition.

Accrued interest receivable on loans totaling $16.7 million and $17.3 million as of September 30, 2025 and December 31, 2024, respectively, is included in other assets on the Consolidated Balance Sheets. We elected not to measure an allowance for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when loans become 90 days past due, or earlier if we believe the collection of interest is doubtful. We believe this policy results in the timely reversal of uncollectable interest. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. In some cases, we may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed and collateral deficiencies, among other things.

For individually analyzed loans which are deemed to be collateral dependent loans, we adopted the practical expedient to measure the allowance based on the fair value of collateral. The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral and the recorded principal balance. If the fair value of the collateral exceeds the recorded principal balance, no allowance is required. Fair value estimates of collateral on individually analyzed loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheets and is increased or decreased via other noninterest expense on our Consolidated Statements of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.

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(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Mortgage Banking Activities: Mortgage loans serviced for others totaled $1.62 billion and $1.55 billion as of September 30, 2025 and December 31, 2024, respectively. Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold and totaled $13.1 million and $12.5 million as of September 30, 2025 and December 31, 2024, respectively. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance. The fair value of mortgage servicing rights totaled $21.7 million and $21.0 million as of September 30, 2025 and December 31, 2024, respectively.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the Consolidated Statements of Income.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income (loss). They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense. We had no derivative instruments designated as hedges as of September 30, 2025, and December 31, 2024.

Goodwill: The acquisition method of accounting requires that assets and liabilities acquired in a business combination be recorded at fair value as of the acquisition date. The valuation of assets and liabilities often involves estimates based on third-party valuations or internal valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. This typically results in goodwill, the amount by which the cost of net assets acquired in a business combination exceeds their fair value, which is subject to impairment testing at least annually. We review goodwill for impairment on an annual basis as of October 1 during the fourth quarter or more often if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit is below its carrying value. Based on our annual impairment analysis of goodwill as of October 1 during the fourth quarter, it was determined that the fair value was in excess of its respective carrying value as of October 1, 2024; therefore, goodwill is considered not impaired.

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(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary.

We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis (generally monthly) or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

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(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following table depicts our sources of noninterest income presented in the Consolidated Statements of Income that are scoped within Topic 606:

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
(Dollars in thousands)	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024

Service charges on deposit and sweep accounts	$	2,064	$	1,753	$	5,871	$	4,976
Credit and debit card income		2,371		2,257		6,922		6,644
Interest rate swap fees		377		389		1,687		2,494
Payroll services income		825		713		2,648		2,295
Customer service fees		298		231		674		611

Service Charges on Deposit and Sweep Accounts: We earn fees from deposit and sweep customers for account maintenance, transaction-based and overdraft services. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month reflecting the period over which we satisfy the performance obligation. Transaction-based fees, which include services such as stop payment and returned item charges, are recognized at the time the transaction is executed as that is the point in time we fulfill the customer request. Service charges on deposit and sweep accounts are withdrawn from the customer account balance.

Credit and Debit Card Income: We earn interchange income on our cardholder debit and credit card usage. Interchange income is primarily comprised of fees whenever our debit and credit cards are processed through card payment networks such as Visa. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Interest Rate Swap Fees: We offer a loan swap program to certain commercial loan customers. Through this program, we originate a variable rate loan with the customer. We and the swap customer will then enter into a fixed interest rate swap. Separately, an identical offsetting swap is entered into by the Company with a counterparty. These “back-to-back” swap arrangements are intended to offset each other and allow us to book a variable rate loan, while providing the customer with a contract for fixed interest payments. Through this program, we receive an upfront, non-refundable fee from the counterparty, dependent upon the pricing, which is recognized upon receipt from the counterparty.

Payroll Services Income: We earn fees from providing payroll processing services for our commercial clients. Fees are assessed for processing weekly or bi-weekly payroll files, reports and documents, as well as year-end tax-related files, reports and documents. Fees are recognized and collected as payroll processing services are completed for each payroll run and year-end processing activities.

Customer Service Fees: We earn fees by providing a variety of other services to our customers, such as wire transfers, check ordering, sales of cashier checks and money orders, and rentals of safe deposit boxes. Generally, fees are recognized and collected daily, concurrently with the point in time we fulfill the customer request. Safe deposit box rentals are on annual contracts, with fees generally earned at the time of the contract signing or renewal. Customer service fees are recorded as other noninterest income on our Consolidated Statements of Income.

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(Unaudited)

2. SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
September 30, 2025
U.S. Government agency debt obligations	$	632,999	$	3,356	$	(29,573	)	$	606,782
Mortgage-backed securities		28,527		12		(4,866	)		23,673
Municipal general obligation bonds		196,099		1,366		(4,890	)		192,575
Municipal revenue bonds		33,103		183		(1,678	)		31,608
Other investments		500		0		0			500

	$	891,228	$	4,917	$	(41,007	)	$	855,138

December 31, 2024
U.S. Government agency debt obligations	$	542,676	$	131	$	(47,226	)	$	495,581
Mortgage-backed securities		31,696		4		(6,332	)		25,368
Municipal general obligation bonds		187,484		513		(7,827	)		180,170
Municipal revenue bonds		31,066		89		(2,422	)		28,733
Other investments		500		0		0			500

	$	793,422	$	737	$	(63,807	)	$	730,352

Securities with unrealized losses at September 30, 2025, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
September 30, 2025
U.S. Government agency debt obligations	$	23,431	$	98	$	347,556	$	29,475	$	370,987	$	29,573
Mortgage-backed securities		22		0		23,138		4,866		23,160		4,866
Municipal general obligation bonds		32,869		565		87,987		4,325		120,856		4,890
Municipal revenue bonds		2,343		18		20,035		1,660		22,378		1,678
Other investments		0		0		0		0		0		0

	$	58,665	$	681	$	478,716	$	40,326	$	537,381	$	41,007

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2. SECURITIES (Continued)

Securities with unrealized losses at December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
December 31, 2024
U.S. Government agency debt obligations	$	113,942	$	2,379	$	361,171	$	44,847	$	475,113	$	47,226
Mortgage-backed securities		194		1		24,865		6,331		25,059		6,332
Municipal general obligation bonds		63,387		1,117		92,153		6,710		155,540		7,827
Municipal revenue bonds		2,840		28		21,865		2,394		24,705		2,422
Other investments		0		0		0		0		0		0

	$	180,363	$	3,525	$	500,054	$	60,282	$	680,417	$	63,807

We evaluate securities in an unrealized loss position at least quarterly. Consideration is given to the financial condition of the issuer and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At September 30, 2025, 643 debt securities with estimated fair values totaling $537 million had unrealized losses aggregating $41.0 million. At December 31, 2024, 843 debt securities with estimated fair values totaling $680 million had unrealized losses aggregating $63.8 million. At September 30, 2025, unrealized losses aggregating $34.4 million were attributable to bonds issued or guaranteed by agencies of the U.S. Federal Government, while unrealized losses totaling $6.6 million were associated with bonds issued by state-based municipalities. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security’s amortized cost basis is written down to fair value through income with the establishment of an allowance. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors.

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(Unaudited)

2. SECURITIES (Continued)

The amortized cost and fair value of debt securities at September 30, 2025, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Amortized		Fair
(Dollars in thousands)	Cost		Value

Due in 2025	$	16,400	$	16,336
Due in 2026 through 2030		499,573		482,797
Due in 2031 through 2035		289,744		275,318
Due in 2036 and beyond		56,484		56,514
Mortgage-backed securities		28,527		23,673
Other investments		500		500

Total available for sale securities	$	891,228	$	855,138

No securities were sold during the first nine months of 2025 or the full-year 2024.

Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $229 million and $219 million as of September 30, 2025, and December 31, 2024, respectively, with estimated market values of $224 million and $209 million at the respective dates. We had no securities issued by all other states and their political subdivisions as of September 30, 2025, and December 31, 2024. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligation securities that are pledged to secure repurchase agreements was $251 million and $122 million at September 30, 2025, and December 31, 2024, respectively. The carrying value of U.S. Government agency debt obligation securities that are pledged to secure specific customer deposits was $12.5 million and $11.7 million at September 30, 2025, and December 31, 2024, respectively.

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(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Commercial loans are divided among five segments based primarily on collateral type, risk characteristics, and primary and secondary sources of repayment. These segments are then further stratified based on the commercial loan grade that is assigned using our standard loan grading paradigm. Retail loans are divided into one of two groups based on risk characteristics and source of repayment. Our allowance for credit loss pools are consistent with those used for loan note disclosure purposes.

Our loan portfolio segments as of both September 30, 2025 and December 31, 2024 were as follows:

Commercial Loans

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Commercial and Industrial: Risks to this loan category include industry concentration and the practical limitations associated with monitoring the condition of the collateral which often consists of inventory, accounts receivable, and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt.

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Owner Occupied Commercial Real Estate: Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.

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Non-Owner Occupied Commercial Real Estate: Loans in this category are susceptible to declines in occupancy rates, business failure, and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.

■

Multi-Family and Residential Rental: Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral. Loans in this category are susceptible to weakening general economic conditions and increases in unemployment rates, as well as market demand and supply of similar property and the resulting impact on occupancy rates, market rents, cash flow, and income-based real estate values. Also, the lack of a suitable alternative use for the properties is a risk for loans in this category.

■

Vacant Land, Land Development and Residential Construction: Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements, and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans. Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.

Retail Loans

■

1-4 Family Mortgages: Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values.

■

Other Consumer Loans: Risks common to these loans include regulatory risks, unemployment, and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Our total loans at September 30, 2025 were $4.62 billion compared to $4.60 billion at December 31, 2024, an increase of $14.4 million, or 0.3%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2025 and December 31, 2024, and the percentage change in loans from the end of 2024 to the end of the third quarter of 2025, are as follows:

											Percent
	September 30, 2025					December 31, 2024					Increase
(Dollars in thousands)	Balance		%			Balance		%			(Decrease)

Commercial:
Commercial and industrial	$	1,337,729		29.0	%	$	1,287,308		28.0	%		3.9	%
Vacant land, land development, and residential construction		70,806		1.5			66,936		1.5			5.8
Real estate – owner occupied		729,451		15.8			748,837		16.3			(2.6	)
Real estate – non-owner occupied		1,091,210		23.6			1,128,404		24.5			(3.3	)
Real estate – multi-family and residential rental		521,111		11.3			475,819		10.3			9.5
Total commercial		3,750,307		81.2			3,707,304		80.6			1.2

Retail:
1-4 family mortgages		780,917		16.9			827,597		18.0			(5.6	)
Other consumer loans		83,936		1.9			65,880		1.4			27.4
Total retail		864,853		18.8			893,477		19.4			(3.2	)

Total loans	$	4,615,160		100.0	%	$	4,600,781		100.0	%		0.3	%

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

An age analysis of past due loans is as follows as of September 30, 2025:

													Recorded
					Greater								Balance
	30 – 59		60 – 89		Than 89								> 89
	Days		Days		Days		Total				Total		Days and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing

Commercial:
Commercial and industrial	$	0	$	0	$	309	$	309	$	1,337,420	$	1,337,729	$	0
Vacant land, land development, and residential construction		5		0		0		5		70,801		70,806		0
Real estate – owner occupied		29		0		0		29		729,422		729,451		0
Real estate – non- owner occupied		0		0		5,532		5,532		1,085,678		1,091,210		0
Real estate – multi-family and residential rental		0		0		0		0		521,111		521,111		0
Total commercial		34		0		5,841		5,875		3,744,432		3,750,307		0

Retail:
1-4 family mortgages		516		82		389		987		779,930		780,917		0
Other consumer loans		281		17		0		298		83,638		83,936		0
Total retail		797		99		389		1,285		863,568		864,853		0

Total past due loans	$	831	$	99	$	6,230	$	7,160	$	4,608,000	$	4,615,160	$	0

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

An age analysis of past due loans is as follows as of December 31, 2024:

													Recorded
					Greater								Balance
	30 – 59		60 – 89		Than 89								> 89
	Days		Days		Days		Total				Total		Days and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing

Commercial:
Commercial and industrial	$	5	$	0	$	864	$	869	$	1,286,439	$	1,287,308	$	0
Vacant land, land development, and residential construction		12		0		0		12		66,924		66,936		0
Real estate – owner occupied		0		0		0		0		748,837		748,837		0
Real estate – non-owner occupied		0		0		0		0		1,128,404		1,128,404		0
Real estate – multi-family and residential rental		0		0		0		0		475,819		475,819		0
Total commercial		17		0		864		881		3,706,423		3,707,304		0

Retail:
1-4 family mortgages		2,365		713		182		3,260		824,337		827,597		0
Other consumer loans		112		0		0		112		65,768		65,880		0
Total retail		2,477		713		182		3,372		890,105		893,477		0

Total past due loans	$	2,494	$	713	$	1,046	$	4,253	$	4,596,528	$	4,600,781	$	0

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Nonaccrual loans as of September 30, 2025 were as follows:

	Recorded
	Principal		Related
(Dollars in thousands)	Balance		Allowance
With no allowance recorded:
Commercial:
Commercial and industrial	$	60	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		60		0

Retail:
1-4 family mortgages		1,382		0
Other consumer loans		36		0
Total retail		1,418		0

Total with no allowance recorded	$	1,478	$	0

With an allowance recorded:
Commercial:
Commercial and industrial	$	1,449	$	1,032
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		5,532		5,532
Real estate – multi-family and residential rental		0		0
Total commercial		6,981		6,564

Retail:
1-4 family mortgages		1,385		273
Other consumer loans		0		0
Total retail		1,385		273

Total with an allowance recorded	$	8,366	$	6,837

Total nonaccrual loans:
Commercial	$	7,041	$	6,564
Retail		2,803		273
Total nonaccrual loans	$	9,844	$	6,837

Nonaccrual loans represent the entire balance of collateral dependent loans. As of September 30, 2025 and December 31, 2024, all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment. Interest income recognized on nonaccrual loans totaled $0.5 million during both the nine months ended September 30, 2025 and 2024, reflecting the collection of interest at the time of principal pay off.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Nonaccrual loans as of December 31, 2024 were as follows:

	Recorded
	Principal		Related
(Dollars in thousands)	Balance		Allowance
With no allowance recorded:
Commercial:
Commercial and industrial	$	615	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		42		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		657		0

Retail:
1-4 family mortgages		1,167		0
Other consumer loans		0		0
Total retail		1,167		0

Total with no allowance recorded	$	1,824	$	0

With an allowance recorded:
Commercial:
Commercial and industrial	$	2,110	$	1,732
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		2,110		1,732

Retail:
1-4 family mortgages		1,808		402
Other consumer loans		0		0
Total retail		1,808		402

Total with an allowance recorded	$	3,918	$	2,134

Total nonaccrual loans:
Commercial	$	2,767	$	1,732
Retail		2,975		402
Total nonaccrual loans	$	5,742	$	2,134

(Continued)

Table of Contents

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The primary risk elements with respect to commercial loans are the financial condition of the borrower, sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. All commercial loans are graded using the following criteria:

Grade 1.	“Exceptional” Loans with this rating contain very little, if any, risk.

Grade 2.	“Outstanding” Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements.

Grade 3.	“Very Good” Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable.

Grade 4.	“Good” Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest.

Grade 5.	“Acceptable” Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are for loans for which repayment risks are satisfactory.

Grade 6.	“Monitor” Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report.

Grade 7.	“Special Mention” Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Grade 8.	“Substandard” Loans with this rate are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Grade 9.	“Doubtful” Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable.

Grade 10.	“Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted.

The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position. Retail loans that reach 90 days or more past due are generally placed into nonaccrual status and are categorized as nonperforming.

(Continued)

Table of Contents

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The following table reflects amortized cost basis of loans as of September 30, 2025 and loan charge-offs during the nine months ended September 30, 2025 based on year of origination:

															Revolving		Grand
(Dollars in thousands)	2025		2024		2023		2022		2021		Prior		Term Total		Loans		Total
Commercial:
Commercial and Industrial:
Grades 1 – 4	$	67,832	$	77,878	$	42,624	$	11,903	$	36,956	$	12,604	$	249,797	$	409,179	$	658,976
Grades 5 – 7		114,811		130,711		65,882		25,531		9,290		1,825		348,050		310,301		658,351
Grades 8 – 9		1,482		0		60		0		249		0		1,791		18,611		20,402
Total	$	184,125	$	208,589	$	108,566	$	37,434	$	46,495	$	14,429	$	599,638	$	738,091	$	1,337,729
Year-to-date gross write offs	$	0	$	4	$	76	$	0	$	0	$	0	$	80	$	7	$	87

Vacant Land, Land Development and Residential Construction:
Grades 1 – 4	$	16,354	$	6,094	$	1,448	$	720	$	420	$	175	$	25,211	$	0	$	25,211
Grades 5 – 7		25,633		15,783		2,053		1,578		162		385		45,594		0		45,594
Grades 8 – 9		0		0		1		0		0		0		1		0		1
Total	$	41,987	$	21,877	$	3,502	$	2,298	$	582	$	560	$	70,806	$	0	$	70,806
Year-to-date gross write offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Real Estate – Owner Occupied:
Grades 1 – 4	$	104,690	$	142,895	$	60,112	$	80,000	$	70,632	$	17,348	$	475,677	$	0	$	475,677
Grades 5 – 7		63,439		56,698		50,622		50,848		16,327		13,114		251,048		0		251,048
Grades 8 – 9		0		0		0		2,697		0		29		2,726		0		2,726
Total	$	168,129	$	199,593	$	110,734	$	133,545	$	86,959	$	30,491	$	729,451	$	0	$	729,451
Year-to-date gross write offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Real Estate – Non-Owner Occupied:
Grades 1 – 4	$	77,917	$	80,034	$	57,076	$	68,944	$	79,308	$	56,998	$	420,277	$	0	$	420,277
Grades 5 – 7		89,600		184,156		181,647		81,739		73,627		54,632		665,401		0		665,401
Grades 8 – 9		5,532		0		0		0		0		0		5,532		0		5,532
Total	$	173,049	$	264,190	$	238,723	$	150,683	$	152,935	$	111,630	$	1,091,210	$	0	$	1,091,210
Year-to-date gross write offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Real Estate – Multi-Family and Residential Rental:
Grades 1 – 4	$	35,042	$	13,816	$	40,311	$	9,705	$	32,363	$	30,826	$	162,063	$	0	$	162,063
Grades 5 – 7		100,327		70,229		148,466		28,664		4,026		7,336		359,048		0		359,048
Grades 8 – 9		0		0		0		0		0		0		0		0		0
Total	$	135,369	$	84,045	$	188,777	$	38,369	$	36,389	$	38,162	$	521,111	$	0	$	521,111
Year-to-date gross write offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Total Commercial	$	702,659	$	778,294	$	650,302	$	362,329	$	323,360	$	195,272	$	3,012,216	$	738,091	$	3,750,307
Total Commercial year-to-date gross write offs	$	0	$	4	$	76	$	0	$	0	$	0	$	80	$	7	$	87

Retail:
1-4 Family Mortgages:
Performing	$	38,286	$	57,460	$	106,613	$	286,020	$	186,616	$	103,154	$	778,149	$	0	$	778,149
Nonperforming		0		168		472		1,065		352		711		2,768		0		2,768
Total	$	38,286	$	57,628	$	107,085	$	287,085	$	186,968	$	103,865	$	780,917	$	0	$	780,917
Year-to-date gross write offs	$	0	$	0	$	85	$	22	$	61	$	3	$	171	$	0	$	171

Other Consumer Loans:
Performing	$	3,545	$	3,760	$	1,934	$	781	$	422	$	531	$	10,973	$	72,927	$	83,900
Nonperforming		0		0		0		0		0		36		36		0		36
Total	$	3,545	$	3,760	$	1,934	$	781	$	422	$	567	$	11,009	$	72,927	$	83,936
Year-to-date gross write offs	$	2	$	2	$	6	$	0	$	0	$	0	$	10	$	5	$	15
Total Retail	$	41,831	$	61,388	$	109,019	$	287,866	$	187,390	$	104,432	$	791,926	$	72,927	$	864,853
Total Retail year-to-date gross write offs	$	2	$	2	$	91	$	22	$	61	$	3	$	181	$	5	$	186

Total	$	744,490	$	839,682	$	759,321	$	650,195	$	510,750	$	299,704	$	3,804,142	$	811,018	$	4,615,160
Total year-to-date gross write offs	$	2	$	6	$	167	$	22	$	61	$	3	$	261	$	12	$	273

There were lines of credit with principal balances of $1.3 million that were converted to term loans during the first nine months of 2025.

(Continued)

Table of Contents

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The following table reflects amortized cost basis of loans as of December 31, 2024 and loan charge-offs during the nine months ended September 30, 2024 based on year of origination:

															Revolving		Grand
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Term Total		Loans		Total
Commercial:
Commercial and Industrial:
Grades 1 – 4	$	102,898	$	68,536	$	41,609	$	47,534	$	9,551	$	8,412	$	278,540	$	351,311	$	629,851
Grades 5 – 7		188,267		88,471		31,755		13,513		3,298		2,019		327,323		309,860		637,183
Grades 8 – 9		4,813		401		3,436		262		69		0		8,981		11,293		20,274
Total	$	295,978	$	157,408	$	76,800	$	61,309	$	12,918	$	10,431	$	614,844	$	672,464	$	1,287,308
Year-to-date gross write offs	$	0	$	0	$	0

MERCANTILE BANK CORP 10-Q