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<SEC-DOCUMENT>0000950124-04-005417.txt : 20041108
<SEC-HEADER>0000950124-04-005417.hdr.sgml : 20041108
<ACCEPTANCE-DATETIME>20041108161240
ACCESSION NUMBER:		0000950124-04-005417
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041108
DATE AS OF CHANGE:		20041108

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MERCANTILE BANK CORP
		CENTRAL INDEX KEY:			0001042729
		STANDARD INDUSTRIAL CLASSIFICATION:	STATE COMMERCIAL BANKS [6022]
		IRS NUMBER:				383360865
		STATE OF INCORPORATION:			MI
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26719
		FILM NUMBER:		041125943

	BUSINESS ADDRESS:	
		STREET 1:		5650 BYRON CENTER AVENUE S. W.
		CITY:			WYOMING
		STATE:			MI
		ZIP:			49509
		BUSINESS PHONE:		616 406-3777

	MAIL ADDRESS:	
		STREET 1:		5650 BYRON CENTER AVENUE S. W.
		CITY:			WYOMING
		STATE:			MI
		ZIP:			49509
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>k88686e10vq.txt
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED SEPTEMBER 30, 2004
<TEXT>
<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2004

          [ ] 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               (IRS Employer Identification No.)
incorporation or organization)

                 5650 BYRON CENTER AVENUE SW, WYOMING, MI 49509
               (Address of principal executive offices) (Zip Code)

                                 (616) 406-3777
              (Registrant's telephone number, including area code)


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 [X]          No [ ]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                         Yes [X]           No [ ]



At November 5, 2004, there were 7,190,851 shares of Common Stock outstanding.


                                       1
<PAGE>


                           MERCANTILE BANK CORPORATION

                                      INDEX


<Table>
<Caption>
PART I.  Financial Information                                                       Page No.
                                                                                     --------
<S>                                                                                  <C>

         Item 1. Financial Statements

         Consolidated Balance Sheets -
            September 30, 2004 (Unaudited) and December 31, 2003 ....................    3

         Consolidated Statements of Income and Comprehensive Income -
            Three and Nine Months Ended September 30, 2004 (Unaudited) and
            September 30, 2003 (Unaudited) ..........................................    4

         Consolidated Statements of Changes in Shareholders' Equity -
            Nine Months Ended September 30, 2004 (Unaudited) and
            September 30, 2003 (Unaudited) ..........................................    5

         Consolidated Statements of Cash Flows -
            Three and Nine Months Ended September 30, 2004 (Unaudited) and
            September 30, 2003 (Unaudited) ..........................................    6

         Notes to Consolidated Financial Statements (Unaudited)......................    8

         Item 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations .....................................   17

         Item 3. Quantitative and Qualitative Disclosures About Market Risk .........   26

         Item 4. Controls and Procedures ............................................   29

PART II. Other Information

         Item 1. Legal Proceedings ..................................................   30

         Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ........   30

         Item 3. Defaults upon Senior Securities ....................................   30

         Item 4. Submission of Matters to a Vote of Security Holders ................   30

         Item 5. Other Information ..................................................   30

         Item 6. Exhibits ...........................................................   30

         Signatures .................................................................   31
</Table>


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                           MERCANTILE BANK CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                      September 30,      December 31,
                                                                           2004              2003
                                                                     ---------------    ---------------
                                                                       (Unaudited)
<S>                                                                  <C>                <C>
ASSETS
     Cash and due from banks                                         $    35,304,000    $    16,309,000
     Short-term investments                                                  327,000            255,000
     Federal funds sold                                                    5,500,000                  0
         Total cash and cash equivalents                                  41,131,000         16,564,000
                                                                     ---------------    ---------------
     Securities available for sale                                        87,625,000         71,421,000
     Securities held to maturity (fair value of $52,855,000
       at September 30, 2004 and $47,102,000 at December 31, 2003)        50,668,000         45,112,000
     Federal Home Loan Bank stock                                          6,726,000          4,977,000

     Total loans and leases                                            1,253,713,000      1,035,963,000
     Allowance for loan and lease losses                                 (17,045,000)       (14,379,000)
                                                                     ---------------    ---------------
              Total loans and leases, net                              1,236,668,000      1,021,584,000

     Premises and equipment, net                                          21,319,000         15,305,000
     Bank owned life insurance policies                                   16,966,000         16,441,000
     Accrued interest receivable                                           5,638,000          4,098,000
     Other assets                                                          8,208,000          7,835,000
                                                                     ---------------    ---------------
         Total assets                                                $ 1,474,949,000    $ 1,203,337,000
                                                                     ===============    ===============


LIABILITIES AND SHAREHOLDERS' EQUITY
     Deposits
         Noninterest-bearing                                         $   111,042,000    $    76,579,000
         Interest-bearing                                              1,033,815,000        826,313,000
                                                                     ---------------    ---------------
              Total deposits                                           1,144,857,000        902,892,000

     Securities sold under agreements to repurchase                       46,691,000         49,545,000
     Federal funds purchased                                                       0          6,000,000
     Federal Home Loan Bank advances                                     120,000,000         90,000,000
     Subordinated debentures                                              16,495,000         16,495,000
     Other borrowed money                                                  1,508,000          1,114,000
     Accrued expenses and other liabilities                                7,463,000          7,090,000
                                                                     ---------------    ---------------
              Total liabilities                                        1,337,014,000      1,073,136,000

Shareholders' equity
     Preferred stock, no par value; 1,000,000 shares
        authorized, none issued                                                    0                  0
     Common stock, no par value: 9,000,000 shares authorized;
        7,176,822 shares outstanding at September 30, 2004 and
        6,805,914 shares outstanding at December 31, 2003                130,935,000        118,560,000
     Retained earnings                                                     6,635,000         11,421,000
     Accumulated other comprehensive income                                  365,000            220,000
                                                                     ---------------    ---------------
         Total shareholders' equity                                      137,935,000        130,201,000
                                                                     ---------------    ---------------
              Total liabilities and shareholders' equity             $ 1,474,949,000    $ 1,203,337,000
                                                                     ===============    ===============
</Table>


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                           MERCANTILE BANK CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                            AND COMPREHENSIVE INCOME

<Table>
<Caption>
                                              Three Months       Three Months       Nine Months        Nine Months
                                                  Ended              Ended             Ended              Ended
                                             September 30,       September 30,     September 30,      September 30,
                                                  2004               2003              2004               2003
                                            ---------------    --------------     --------------    ---------------
                                               (Unaudited)        (Unaudited)       (Unaudited)        (Unaudited)
<S>                                         <C>                <C>                <C>               <C>
Interest income
     Loans and leases, including fees       $    16,193,000    $   12,679,000     $   44,823,000    $    36,345,000
     Investment securities                        1,598,000         1,164,000          4,424,000          3,566,000
     Federal funds sold                              26,000            11,000             53,000             50,000
     Short-term investments                           2,000                 0              3,000              1,000
                                            ---------------    --------------     --------------    ---------------
         Total interest income                   17,819,000        13,854,000         49,303,000         39,962,000

Interest expense
     Deposits                                     5,706,000         4,952,000         15,385,000         15,353,000
     Short-term borrowings                          220,000           168,000            576,000            512,000
     Federal Home Loan Bank advances                652,000           274,000          1,778,000            531,000
     Long-term borrowings                           385,000           415,000          1,219,000          1,240,000
                                            ---------------    --------------     --------------    ---------------
         Total interest expense                   6,963,000         5,809,000         18,958,000         17,636,000
                                            ---------------    --------------     --------------    ---------------

NET INTEREST INCOME                              10,856,000         8,045,000         30,345,000         22,326,000

Provision for loan and lease losses               1,200,000         1,380,000          3,674,000          2,850,000
                                            ---------------    --------------     --------------    ---------------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN AND LEASE LOSSES                      9,656,000         6,665,000         26,671,000         19,476,000

Noninterest income
     Services charges on accounts                   319,000           303,000            930,000            852,000
     Net gain on sales of securities                      0            59,000             78,000            271,000
     Net gain on sales of loans                     135,000                 0            175,000                  0
     Other income                                   702,000           709,000          2,013,000          2,184,000
                                            ---------------    --------------     --------------    ---------------
         Total noninterest income                 1,156,000         1,071,000          3,196,000          3,307,000

Noninterest expense
     Salaries and benefits                        3,589,000         3,029,000         10,382,000          8,285,000
     Occupancy                                      401,000           353,000          1,170,000          1,032,000
     Furniture and equipment                        277,000           272,000            817,000            738,000
     Other expense                                2,148,000         1,110,000          4,601,000          3,099,000
                                            ---------------    --------------     --------------    ---------------
         Total noninterest expenses               6,415,000         4,764,000         16,970,000         13,154,000
                                            ---------------    --------------     --------------    ---------------

INCOME BEFORE FEDERAL INCOME
   TAX EXPENSE                                    4,397,000         2,972,000         12,897,000          9,629,000

Federal income tax expense                        1,283,000           744,000          3,664,000          2,628,000
                                            ---------------    --------------     --------------    ---------------

NET INCOME                                  $     3,114,000    $    2,228,000     $    9,233,000    $     7,001,000
                                            ===============    ==============     ==============    ===============
COMPREHENSIVE INCOME                        $     4,275,000    $    1,611,000     $    9,378,000    $     6,035,000
                                            ===============    ==============     ==============    ===============


Basic earnings per share                    $          0.43    $         0.38     $         1.29    $          1.22
                                            ===============    ==============     ==============    ===============
Diluted earnings per share                  $          0.43    $         0.37     $         1.26    $          1.19
                                            ===============    ==============     ==============    ===============
Cash dividends per share                    $          0.09    $         0.08     $         0.27    $          0.24
                                            ===============    ==============     ==============    ===============

Average basic shares outstanding                  7,176,032         5,792,537          7,169,198          5,723,020
                                            ===============    ==============     ==============    ===============
Average diluted shares outstanding                7,318,345         5,945,459          7,316,510          5,862,644
                                            ===============    ==============     ==============    ===============
</Table>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                           MERCANTILE BANK CORPORATION
                           CONSOLIDATED STATEMENTS OF
                         CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)

<Table>
<Caption>
                                                                                     Accumulated
                                                                                        Other            Total
                                                      Common         Retained       Comprehensive    Shareholders'
                                                      Stock          Earnings           Income          Equity
                                                  -------------    -------------    -------------    -------------
<S>                                               <C>              <C>              <C>              <C>
BALANCE, JANUARY 1, 2003                          $  75,530,000    $   3,250,000    $   1,054,000    $  79,834,000

Comprehensive income:
     Net income for the period from
       January 1, 2003 through
       September 30, 2003                                              7,001,000                         7,001,000

     Change in net unrealized gain
       (loss) on securities available for sale,
       net of reclassifications and tax effect                                           (966,000)        (966,000)
                                                                                                     -------------
         Total comprehensive income                                                                      6,035,000

Net proceeds from common stock
   sale, 1,255,075 shares                            37,437,000                                         37,437,000

Common stock cash dividends, $0.24 per share                          (1,300,000)                       (1,300,000)

Cash dividend reinvestment plan, 2,585 shares            77,000                                             77,000

Employee stock purchase plan, 1,435 shares               38,000                                             38,000

Stock option exercises, 21,024 shares                    36,000                                             36,000
                                                  -------------    -------------    -------------    -------------

BALANCE, SEPTEMBER 30, 2003                       $ 113,118,000    $   8,951,000    $      88,000    $ 122,157,000
                                                  =============    =============    =============    =============

BALANCE, JANUARY 1, 2004                          $ 118,560,000    $  11,421,000    $     220,000    $ 130,201,000

Comprehensive income:
     Net income for the period from
       January 1, 2004 through
       September 30, 2004                                              9,233,000                         9,233,000

     Change in net unrealized gain
       on securities available for sale, net
       of reclassifications and tax effect                                                145,000          145,000
                                                                                                     -------------
         Total comprehensive income                                                                      9,378,000

Payment of 5% stock dividend, 340,180 shares         12,112,000      (12,116,000)                           (4,000)

Common stock cash dividends, $0.27 per share                         (1,903,000)                        (1,903,000)

Cash dividend reinvestment plan, 2,316 shares            80,000                                             80,000

Employee stock purchase plan, 1,613 shares               56,000                                             56,000

Stock option exercises, 26,799 shares                   127,000                                            127,000
                                                  -------------    -------------    -------------    -------------
BALANCE, SEPTEMBER 30, 2004                       $ 130,935,000    $   6,635,000    $     365,000    $ 137,935,000
                                                  =============    =============    =============    =============
</Table>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


                           MERCANTILE BANK CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                         Three Months     Three Months      Nine Months      Nine Months
                                                             Ended            Ended            Ended            Ended
                                                         September 30,    September 30,    September 30,    September 30,
                                                             2004             2003             2004             2003
                                                         -------------    -------------    -------------    -------------
                                                          (Unaudited)      (Unaudited)     (Unaudited)    (Unaudited)
<S>                                                      <C>              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                          $   3,114,000    $   2,228,000    $   9,233,000    $   7,001,000
     Adjustments to reconcile net income
        to net cash from operating activities
         Depreciation and amortization                         405,000          535,000        1,253,000        1,502,000
         Provision for loan and lease losses                 1,200,000        1,380,000        3,674,000        2,850,000
         Net gain on sales of loans                           (135,000)               0         (175,000)               0
         Net gain on sales of securities                             0          (59,000)         (78,000)        (271,000)
         Net change in:
              Accrued interest receivable                   (1,381,000)        (681,000)      (1,540,000)        (806,000)
              Bank owned life insurance policies              (170,000)        (197,000)        (525,000)        (602,000)
              Other assets                                     343,000         (408,000)        (655,000)      (1,109,000)
              Accrued expenses and other liabilities         1,047,000          705,000          373,000          826,000
                                                         -------------    -------------    -------------    -------------
                 Net cash used in operating activities       4,423,000        3,503,000       11,560,000        9,391,000

CASH FLOWS FROM INVESTING ACTIVITIES
     Loan and leases originations and payments, net        (68,682,000)    (106,238,000)    (218,583,000)    (200,895,000)
     Purchases of:
         Securities available for sale                     (24,759,000)     (11,847,000)     (37,723,000)     (36,976,000)
         Securities held to maturity                        (2,210,000)      (2,234,000)      (6,546,000)      (6,873,000)
         Federal Home Loan Bank stock                          (82,000)      (1,677,000)      (1,749,000)      (3,141,000)
     Proceeds from:
         Maturities, calls and repayments of
            available for sale securities                    8,618,000        7,061,000       19,958,000       21,888,000
         Maturities, calls and repayments of
            held to maturity securities                              0          381,000          965,000          915,000
         Sales of available for sale securities                      0        3,150,000        1,748,000       11,486,000
     Purchases of premises and equipment, net               (3,150,000)      (1,366,000)      (6,924,000)      (3,914,000)
     Purchases of bank owned life insurance policies                 0         (235,000)               0         (535,000)
                                                         -------------    -------------    -------------    -------------
              Net cash used in investing activities        (90,265,000)    (113,005,000)    (248,854,000)    (218,045,000)

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in deposits                               98,788,000       45,994,000      241,965,000      135,468,000
     Net increase (decrease) in securities sold under
       agreements to repurchase                               (269,000)       8,620,000       (2,854,000)      (2,025,000)
     Net increase in Federal Home Loan Bank advances                 0       25,000,000       30,000,000       55,000,000
     Issuance of subordinated debt                          16,495,000                0       16,495,000                0
     Redemption of subordinated debt                       (16,495,000)               0      (16,495,000)               0
     Net increase (decrease) in other borrowed money        (6,906,000)          90,000       (5,606,000)         436,000
     Net proceeds from sale of common stock                          0       37,437,000                0       37,437,000
     Stock option exercises                                          0            9,000          127,000           36,000
     Employee stock purchase plan                               18,000           14,000           56,000           38,000
     Cash dividend reinvestment plan                            15,000           63,000           80,000           77,000
     Payment of cash dividends                                (645,000)        (434,000)      (1,903,000)      (1,300,000)
     Cash paid in lieu of fractional shares on
       stock dividend                                                0                0           (4,000)               0
                                                         -------------    -------------    -------------    -------------
         Net cash from financing activities                 91,001,000      116,793,000      261,861,000      225,167,000
                                                         -------------    -------------    -------------    -------------
</Table>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>


                           MERCANTILE BANK CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<Table>
<Caption>
                                                          Three Months     Three Months     Nine Months      Nine Months
                                                             Ended            Ended            Ended            Ended
                                                         September 30,    September 30,    September 30,    September 30,
                                                             2004             2003             2004             2003
                                                         -------------    -------------    -------------    -------------
                                                          (Unaudited)      (Unaudited)      (Unaudited)      (Unaudited)
<S>                                                      <C>               <C>             <C>              <C>
Net change in cash and cash equivalents                      5,159,000        7,291,000      24,567,000        16,513,000
Cash and cash equivalents at beginning of period            35,972,000       37,339,000      16,564,000        28,117,000
                                                         -------------    -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD               $  41,131,000     $ 44,630,000    $ 41,131,000     $  44,630,000
                                                         =============     ============    ============     =============
Cash paid during the period for:
     Interest                                            $   6,329,000     $  5,742,000    $ 18,512,000     $  17,466,000
     Federal income tax                                      1,600,000        1,150,000       4,525,000         3,725,000
</Table>


          See accompanying notes to consolidated financial statements.


                                       7
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation: The unaudited financial statements for the three and
     nine months ended September 30, 2004 include the consolidated results of
     operations of Mercantile Bank Corporation and its consolidated
     subsidiaries. These subsidiaries include Mercantile Bank of West Michigan
     ("our bank"), our bank's four subsidiaries, Mercantile Bank Mortgage
     Company, LLC ("our mortgage company"), Mercantile BIDCO, Inc. ("our
     BIDCO"), Mercantile Bank Real Estate Co., LLC ("our real estate company"),
     and Mercantile Insurance Center, Inc. ("our insurance center"). 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 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 periods ended
     September 30, 2004 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, 2003.

     Mercantile Bank Capital Trust I ("the trust"), a business trust formed by
     Mercantile Bank Corporation, sold 16,000 trust preferred securities at
     $1,000.00 per trust preferred security in a September 2004 offering.
     Mercantile Bank Corporation issued subordinated debentures to the trust in
     exchange for the proceeds of the offering. The debentures and related debt
     issuance costs represent the sole assets of the trust. Under current
     accounting guidance, FASB Interpretation No. 46, as revised in December
     2003, the trust is not consolidated. Accordingly, Mercantile Bank
     Corporation does not report the securities issued by the trust as
     liabilities, but instead reports as liabilities the subordinated debentures
     issued by Mercantile Bank Corporation and held by the trust, as these are
     not eliminated in consolidation. The effect of not consolidating the trust
     does not significantly change the amounts reported as Mercantile Bank
     Corporation's assets, liabilities, equity or interest expense.

     Stock Dividend: All per share amounts and average shares outstanding have
     been adjusted for all periods presented to reflect the 5% stock dividend
     distributed on May 3, 2004. The Statement of Changes in Shareholders'
     Equity reflects a transfer from retained earnings to common stock for the
     value of the shares distributed.

     Allowance for Loan and Lease Losses: The allowance for loan and lease
     losses is a valuation allowance for probable incurred credit losses,
     increased by the provision for loan and lease losses and recoveries, and
     decreased by charge-offs. Management estimates the allowance balance
     required based on past loan loss experience, the nature and volume of the
     portfolio, information about specific borrower situations and estimated
     collateral values, and economic conditions. Allocations of the allowance
     may be made for specific loans and leases, but the entire allowance is
     available for any loan or lease that, in management's judgment, should be
     charged-off. Loan and lease losses are charged against the allowance when
     management believes the uncollectibility of a loan or lease balance is
     confirmed.


                                       8
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   SIGNIFICANT ACCOUNTING POLICIES (Continued)

     A loan or lease is impaired when full payment under the loan or lease terms
     is not expected. Impairment is evaluated in aggregate for smaller-balance
     loans of similar nature such as residential mortgage, consumer and credit
     card loans, and on an individual loan basis for other loans. If a loan or
     lease is impaired, a portion of the allowance is allocated so that the loan
     or lease is reported, net, at the present value of estimated future cash
     flows using the loan's or lease's existing rate or at the fair value of
     collateral if repayment is expected solely from the collateral. Loans and
     leases are evaluated for impairment when payments are delayed, typically 90
     days or more, or when the internal grading system indicates a doubtful
     classification.

     Stock Compensation: Employee compensation expense under stock option plans
     is reported using the intrinsic value method. No stock-based compensation
     cost is reflected in net income, as all options granted had an exercise
     price equal to or greater than the market price of the underlying common
     stock at date of grant. The following table illustrates the effect on net
     income and earnings per share if expense was measured using the fair value
     recognition provisions of FASB Statement No. 123, Accounting for
     Stock-Based Compensation.

<Table>
<Caption>
                                             Three months ended                Nine months ended
                                       September 30,   September 30,     September 30,   September 30,
                                            2004            2003              2004            2003
                                       -------------   -------------     -------------   -------------
<S>                                    <C>             <C>               <C>             <C>
Net income as reported                 $   3,114,000   $   2,228,000     $   9,233,000   $   7,001,000
Deduct: Stock-based compensation
   expense determined under fair
   value based method                         63,000          81,000           188,000         244,000
                                       -------------   -------------     -------------   -------------
Pro forma net income                       3,051,000       2,147,000         9,045,000       6,757,000
                                       =============   =============     =============   =============

Basic earnings per share as reported   $        0.43   $        0.38     $        1.29   $        1.22
Pro forma basic earnings per share              0.43            0.37              1.26            1.18

Diluted earnings per share
   as reported                         $        0.43   $        0.37     $        1.26   $        1.19
Pro forma diluted earnings per share            0.42            0.36              1.24            1.15
</Table>

     The pro forma effects are computed using option pricing models, using the
     following weighted-average assumptions as of grant date.

<Table>
<Caption>
                                             Three months ended                Nine months ended
                                       September 30,   September 30,     September 30,   September 30,
                                            2004            2003              2004            2003
                                       -------------   -------------     -------------   -------------
<S>                                    <C>             <C>               <C>             <C>
     Risk-free interest rate                    3.37%           4.78%             3.37%           4.78%
     Expected option life                    7 Years         7 Years           7 Years         7 Years
     Expected stock price volatility              23%             30%               23%             30%
     Dividend yield                             1.00%           1.00%             1.00%           1.00%
</Table>


                                       9
<PAGE>

                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


2.   LOANS AND LEASES

     Our total loans and leases at September 30, 2004 were $1,253.7 million
     compared to $1,036.0 million at December 31, 2003, an increase of $217.7
     million, or 21.0%. The components of our outstanding balances at September
     30, 2004 and December 31, 2003, and the percentage changes in loans and
     leases from the end of 2003 to the end of the third quarter 2004 are as
     follows:

<Table>
<Caption>
                                                                                                       Percent
                                          September 30, 2004                December 31, 2003         Increase/
                                          Balance            %            Balance             %       (Decrease)
                                     ---------------       -----       --------------       -----     ----------
<S>                                  <C>                   <C>         <C>                  <C>       <C>
     Real Estate:
         Construction and land
           development               $   132,396,000        10.6%      $  117,649,000        11.4%       12.5%
         Secured by 1-4 family
           properties                    118,306,000         9.4           92,339,000         8.9        28.1
         Secured by multi-family
           properties                     35,509,000         2.8           28,950,000         2.8        22.7
         Secured by nonresidential
           properties                    608,608,000        48.5          485,080,000        46.8        25.5
     Commercial                          351,606,000        28.1          304,800,000        29.4        15.4
     Leases                                2,147,000         0.2            2,309,000         0.2        (7.0)
     Consumer                              5,141,000         0.4            4,836,000         0.5         6.3
                                     ---------------        ----       --------------       -----        ----
         Total loans and leases      $ 1,253,713,000       100.0%      $1,035,963,000       100.0%       21.0%
                                     ===============       =====       ==============       =====        ====
</Table>


3.   ALLOWANCE FOR LOAN AND LEASE LOSSES

     The following is a summary of the change in our allowance for loan and
     lease losses account for the three and nine months ended September 30:

<Table>
<Caption>
                                     Three months ended                  Nine months ended
                              September 30,     September 30,      September 30,    September 30,
                                  2004              2003               2004             2003
                              -------------    -------------       -------------    -------------
<S>                           <C>              <C>                 <C>              <C>
Balance at beginning of
  period                      $  16,312,000    $  12,158,000       $  14,379,000    $  10,890,000
     Charge-offs                   (581,000)         (95,000)         (1,143,000)        (524,000)
     Recoveries                     114,000           39,000             135,000          266,000
     Provision for loan and
       lease losses               1,200,000        1,380,000           3,674,000        2,850,000
                              -------------    -------------       -------------    -------------
Balance at June 30            $  17,045,000    $  13,482,000       $  17,045,000    $  13,482,000
                              =============    =============       =============    =============
</Table>


                                       10
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

4.   PREMISES AND EQUIPMENT - NET

     Premises and equipment are comprised of the following:

<Table>
<Caption>
                                                 September 30,   December 31,
                                                      2004            2003
                                                -------------   -------------
<S>                                             <C>             <C>
Land and improvements                           $   5,753,000   $   5,745,000
Buildings and leasehold improvements               14,699,000       8,183,000
Furniture and equipment                             5,335,000       4,935,000
                                                -------------   -------------
                                                   25,787,000      18,863,000
Less accumulated depreciation                       4,468,000       3,558,000
                                                -------------   -------------
Premises and equipment, net                     $  21,319,000   $  15,305,000
                                                =============   =============
</Table>


     Depreciation expense amounted to $299,000 during the third quarter of 2004,
     compared to $308,000 in the third quarter of 2003. Depreciation expense
     amounted to $909,000 during the first nine months of 2004, compared to
     $859,000 during the first nine months of 2003.

5.   DEPOSITS

     Our total deposits at September 30, 2004 were $1,144.9 million compared to
     $902.9 million at December 31, 2003, an increase of $242.0 million, or
     26.8%. The components of our outstanding balances at September 30, 2004 and
     December 31, 2003, and percentage change in deposits from the end of 2003
     to the end of the third quarter 2004 are as follows:

<Table>
<Caption>
                                                                                                    Percent
                                        September 30, 2004               December 31, 2003         Increase/
                                       Balance            %             Balance           %        (Decrease)
                                   ---------------      -----       --------------      ------     ----------
<S>                                <C>                   <C>        <C>                   <C>         <C>
Noninterest-bearing demand         $   111,042,000        9.7%      $   76,579,000        8.5%        45.0%
Interest-bearing checking               35,435,000        3.1           34,241,000        3.8          3.5
Money market                             9,974,000        0.9            8,290,000        0.9         20.3
Savings                                138,337,000       12.1          101,710,000       11.3         36.0
Time, under $100,000                     8,688,000        0.8            8,163,000        0.9          6.4
Time, $100,000 and over                 86,886,000        7.5           82,288,000        9.1          5.6
                                   ----------------     -----       --------------      -----         ----
                                       390,362,000       34.1          311,271,000       34.5         25.4
Out-of-area time,
  under $100,000                       104,618,000        9.1           98,079,000       10.9          6.7
Out-of-area time,
  $100,000 and over                    649,877,000       56.8          493,542,000       54.6         31.7
                                   ----------------     -----       --------------      -----         ----
                                       754,495,000       65.9          591,621,000       65.5         27.5
                                   ----------------     -----       --------------      -----         ----
    Total deposits                 $  1,144,857,000     100.0%      $  902,892,000      100.0%        26.8%
                                   ================     =====       ==============      =====         ====
</Table>


                                       11
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

6.   SHORT-TERM BORROWINGS

     Information relating to our securities sold under agreements to repurchase
follows:

<Table>
<Caption>
                                              September 30,     December 31,
                                                    2004             2003
                                              -------------    -------------
<S>                                           <C>              <C>
Outstanding balance at end of period          $  46,691,000    $  49,545,000
Average interest rate at end of period                 1.73%            1.38%

Average balance during the period             $  47,019,000    $  45,865,000
Average interest rate during the period                1.45%            1.45%

Maximum month end balance during the period   $  51,309,000    $  55,270,000
</Table>

     Securities sold under agreements to repurchase ("repurchase agreements")
     generally have original maturities of less than one year. Repurchase
     agreements are treated as financings and the obligations to repurchase
     securities sold are reflected as liabilities. Securities involved with the
     agreements are recorded as assets of our bank and are primarily held in
     safekeeping by correspondent banks. Repurchase agreements are offered
     principally to certain large deposit customers as deposit equivalent
     investments.



7.   FEDERAL HOME LOAN BANK ADVANCES

     Our outstanding balances at September 30, 2004 and December 31, 2003 were
as follows.

<Table>
<Caption>
                                                       September 30,    December 31,
                                                           2004             2003
                                                       -------------    -------------
<S>                                                    <C>              <C>
Maturities November 2004 through September 2006,
   fixed rates from 1.62% to 3.21%, averaging 2.23%    $ 110,000,000               0

Maturities in May 2006, floating rates tied to Libor
   indices, averaging 1.84% as of September 30, 2004      10,000,000               0

Maturities January 2004 through September 2006,
   fixed rates from 1.54% to 3.21%, averaging 2.07%                0   $  90,000,000
                                                       -------------    -------------
         Total Federal Home Loan Bank advances         $ 120,000,000   $  90,000,000
                                                       =============   =============
</Table>

     Each advance is payable at its maturity date, and is subject to a
     prepayment fee if paid prior to the maturity date. The advances are
     collateralized by residential mortgage loans, first mortgage liens on
     multi-family residential property loans, first mortgage liens on commercial
     real estate property loans, and substantially all other assets of our bank,
     under a blanket lien arrangement. Our borrowing line of credit as of
     September 30, 2004 totaled $195.7 million, with availability approximating
     $65.0 million.


                                       12
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


7.   FEDERAL HOME LOAN BANK ADVANCES  (Continued)

     Maturities of FHLB advances currently outstanding during the next five
years are:

<Table>
<S>                                           <C>
                        2004                  $ 20,000,000
                        2005                    65,000,000
                        2006                    35,000,000
                        2007                             0
                        2008                             0
</Table>

8.   COMMITMENTS AND OFF-BALANCE-SHEET RISK

     Our bank is a party to financial instruments with off-balance-sheet risk in
     the normal course of business to meet the financing needs of our customers.
     These financial instruments include commitments to extend credit and
     standby letters of credit. Loan commitments to extend credit are agreements
     to lend to a customer as long as there is no violation of any condition
     established in the contract. Standby letters of credit are conditional
     commitments issued by our bank to guarantee the performance of a customer
     to a third party. Commitments generally have fixed expiration dates or
     other termination clauses and may require payment of a fee. Since many of
     the commitments are expected to expire without being drawn upon, the total
     commitment amounts do not necessarily represent future cash requirements.

     These instruments involve, to varying degrees, elements of credit risk in
     excess of the amount recognized, if any, in the balance sheet. Our bank's
     maximum exposure to loan loss in the event of nonperformance by the other
     party to the financial instrument for commitments to extend credit and
     standby letters of credit is represented by the contractual notional amount
     of those instruments. Our bank uses the same credit policies in making
     commitments and conditional obligations as it does for on-balance sheet
     instruments. Collateral, such as accounts receivable, securities,
     inventory, property and equipment, is generally obtained based on
     management's credit assessment of the borrower.

     A summary of the contractual amounts of our financial instruments with
     off-balance-sheet risk at September 30, 2004 and December 31, 2003 follows:

<Table>
<Caption>

                                               September 30,    December 31,
                                                    2004           2003
                                               -------------   -------------
<S>                                            <C>             <C>
Commercial unused lines of credit              $ 229,478,000   $ 176,943,000
Unused lines of credit secured by 1-4 family
  residential properties                          23,961,000      19,020,000
Credit card unused lines of credit                 7,855,000       8,990,000
Other consumer unused lines of credit              5,799,000       5,569,000
Commitments to make loans                         41,133,000      73,570,000
Standby letters of credit                         57,979,000      57,918,000
                                               -------------   -------------
       Total loan and leases commitments       $ 366,205,000   $ 342,010,000
                                               =============   =============
</Table>


                                       13
<PAGE>

                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


9.   REGULATORY MATTERS

     We are subject to regulatory capital requirements administered by federal
     banking agencies. Capital adequacy guidelines and prompt corrective action
     regulations involve quantitative measures of assets, liabilities, and
     certain off-balance-sheet items calculated under regulatory accounting
     practices. Capital amounts and classifications are also subject to
     qualitative judgments by regulators about components, risk weightings, and
     other factors, and the regulators can lower classifications in certain
     cases. Failure to meet various capital requirements can initiate regulatory
     action that could have a direct material effect on our financial
     statements.

     The prompt corrective action regulations provide five classifications,
     including well capitalized, adequately capitalized, undercapitalized,
     significantly undercapitalized, and critically undercapitalized, although
     these terms are not used to represent overall financial condition. If not
     well capitalized, regulatory approval is required to accept brokered
     deposits. If undercapitalized, capital distributions are limited, as is
     asset growth and expansion, and plans for capital restoration are required.

     Our actual capital levels and minimum required levels were (dollars in
     thousands):

<Table>
<Caption>
                                                                                         Minimum Required
                                                                                           to be Well
                                                              Minimum Required          Capitalized Under
                                                                 for Capital            Prompt Corrective
                                         Actual               Adequacy Purposes        Action Regulations
                                    ----------------          -----------------        ------------------
                                     Amount    Ratio           Amount     Ratio         Amount      Ratio
                                    --------   -----          --------    -----        ---------    -----
September 30, 2004
- ------------------
<S>                                 <C>        <C>            <C>          <C>         <C>          <C>
  Total capital (to risk
    weighted assets)
     Consolidated                   $170,614   12.2%          $111,786     8.0%        $ 139,733    10.0%
     Bank                            167,185   12.0            111,695     8.0           139,619    10.0
  Tier 1 capital (to risk
    weighted assets)
     Consolidated                    153,569   11.0             55,893     4.0            83,840     6.0
     Bank                            150,140   10.8             55,848     4.0            83,771     6.0
  Tier 1 capital (to
    average assets)
     Consolidated                    153,569   10.8             57,162     4.0            71,453     5.0
     Bank                            150,140   10.5             57,036     4.0            71,295     5.0
</Table>


                                       14
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


9.   REGULATORY MATTERS (Continued)

<Table>
<Caption>
                                                                                         Minimum Required
                                                                                           to be Well
                                                              Minimum Required          Capitalized Under
                                                                 for Capital            Prompt Corrective
                                         Actual               Adequacy Purposes        Action Regulations
                                    ----------------          -----------------        ------------------
                                     Amount    Ratio           Amount     Ratio         Amount      Ratio
                                    --------   -----          --------    -----        ---------    -----
December 31, 2003
- ------------------
<S>                                 <C>        <C>            <C>          <C>          <C>         <C>
  Total capital (to risk
    weighted assets)
     Consolidated                   $160,360   13.8%          $ 92,711     8.0%        $ 115,888    10.0%
     Bank                            156,950   13.6             92,556     8.0           115,695    10.0
  Tier 1 capital (to risk
    weighted assets)
     Consolidated                    145,981   12.6             46,356     4.0            69,533     6.0
     Bank                            142,571   12.3             46,278     4.0            69,417     6.0
  Tier 1 capital (to
    average assets)
     Consolidated                    145,981   12.5             46,756     4.0            58,444     5.0
     Bank                            142,571   12.2             46,703     4.0            58,378     5.0
</Table>

     Our capital levels as of September 30, 2004 include the $16.0 million in
     trust preferred securities issued by the trust subject to certain
     limitations. Federal Reserve guidelines limit the amount of trust preferred
     securities which can be included in our Tier 1 capital to 25% of total Tier
     1 capital. As of September 30, 2004, the entire $16.0 million of the trust
     preferred securities were included as Tier 1 capital.

     Our and our bank's ability to pay cash and stock dividends is subject to
     limitations under various laws and regulations and to prudent and sound
     banking practices. We declared a 5% stock dividend on April 7, 2004, that
     was distributed on May 3, 2004 to record holders as of April 16, 2004. All
     earnings per share and dividend per share information have been adjusted
     for the 5% stock dividend. We have also paid three cash dividends on our
     common stock during 2004. On January 6, 2004, we declared a $0.09 per share
     cash dividend on our common stock, which was paid on March 10, 2004 to
     record holders as of February 10, 2004. On April 7, 2004, we declared a
     $0.09 per share cash dividend on our common stock, which was paid on June
     10, 2004 to record holders as of May 10, 2004. On July 7, 2004, we declared
     a $0.09 per share cash dividend on our common stock, which was paid on
     September 10, 2004 to record holders as of August 10, 2004. On October 6,
     2004, we declared a $0.09 per share cash dividend on our common stock,
     which is payable on December 10, 2004 to record holders as of November 10,
     2004.


                                       15
<PAGE>


                           MERCANTILE BANK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


10.  BENEFIT PLANS

     We sponsor an employee stock purchase plan which allows employees to defer
     after-tax payroll dollars and purchase our common stock on a quarterly
     basis. We have registered 26,250 shares of common stock to be issued and
     purchased under the plan; however, the plan allows for shares to be
     purchased directly from us or on the open market. During the nine months
     ended September 30, 2004, we issued 1,613 shares under the plan.


                                       16
<PAGE>

                           MERCANTILE BANK CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections about the
financial services industry, the economy, and about our company. Words such as
"anticipates", "believes", "estimates", "expects", "forecasts", "intends", "is
likely", "plans", "projects", variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecasted in
such forward-looking statements. We undertake no obligation to update, amend, or
clarify forward looking-statements, whether as a result of new information,
future events (whether anticipated or unanticipated), or otherwise.

Future Factors include, among others, changes in interest rates and interest
rate relationships; demand for products and services; the degree of competition
by traditional and non-traditional competitors; changes in banking regulation;
changes in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes; the outcomes
of contingencies; trends in customer behavior as well as their ability to repay
loans; and changes in the national and local economy. These are representative
of the Future Factors that could cause a difference between an ultimate actual
outcome and a forward-looking statement.

INTRODUCTION

The following discussion compares the financial condition of Mercantile Bank
Corporation and its consolidated subsidiaries, Mercantile Bank of West Michigan
("our bank"), our bank's four subsidiaries Mercantile Bank Mortgage Company, LLC
("our mortgage company"), Mercantile BIDCO, Inc. ("our BIDCO"), Mercantile Bank
Real Estate Co., LLC ("our real estate company") and Mercantile Insurance
Center, Inc. ("our insurance center"), at September 30, 2004 to December 31,
2003 and the results of operations for the three and nine months ended September
30, 2004 and September 30, 2003. This discussion should be read in conjunction
with the interim consolidated financial statements and footnotes included in
this report. Unless the text clearly suggests otherwise, references in this
report to "us," "we," "our," or "the company" include Mercantile Bank
Corporation and its consolidated subsidiaries referred to above.

CRITICAL ACCOUNTING POLICIES

Generally accepted accounting principles are complex and require management to
apply significant judgment to various accounting, reporting and disclosure
matters. Management must use assumptions and estimates to apply these principles
where actual measurements are not possible or practical. The Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with our unaudited financial statements included in this
report. For a complete discussion of our significant accounting policies, see
footnotes to our Consolidated Financial Statements included on pages F-27
through F-31 in our Form 10-K for the fiscal year ended December 31, 2003
(Commission file number 000-26719).


                                       17
<PAGE>

                           MERCANTILE BANK CORPORATION

RECENT EVENTS

On September 16, 2004, Mercantile Bank Corporation entered into several
agreements providing for the private sale of Series A and Series B Floating Rate
Preferred Securities by its newly formed Delaware trust subsidiary, Mercantile
Bank Capital Trust I (the "trust") to STI Investment Management, Inc., a
Delaware corporation (the "purchaser"). The sale of the Series A Preferred
Securities to the purchaser for $16.0 million was completed on September 16,
2004. The agreements provide for the sale of the Series B Preferred Securities
to the purchaser for $16.0 million on or before December 15, 2004, or such other
later date as the parties may designate. The agreements also provide for the
trust to sell $495,000 of Series A and Series B Common Securities to Mercantile
Bank Corporation. The sale of the $495,000 of Series A Common Securities to
Mercantile Bank Corporation was completed on September 16, 2004; and the
$495,000 of Series B Common Securities is expected to be sold to Mercantile Bank
Corporation later this year at the time that the Series B Preferred Securities
are sold to the purchaser.

The proceeds of the Series A Preferred Securities and the Series A Common
Securities were used by the trust on September 16, 2004 to purchase $16,495,000
Series A Floating Rate Junior Subordinated Notes that were issued by Mercantile
Bank Corporation. The agreements contemplate that the proceeds of the Series B
Preferred Securities and the Series B Common Securities, when they are issued by
the trust, will be used to purchase $16,495,000 Series B Floating Rate Junior
Subordinated Notes that will be issued by Mercantile Bank Corporation. The
Series A and B Floating Rate Junior Subordinated Notes ("Floating Rate Notes")
mature 30 years after their date of issuance, and can be redeemed in whole or in
part by Mercantile Bank Corporation, at its option, at 100% of the principal
amount and accrued and unpaid interest, at any time after the fifth anniversary
of the first interest payment date. The Floating Rate Notes bear interest at the
three-month LIBOR rate plus 2.18%, subject to adjustment quarterly. Interest is
payable on each January 18, April 18, July 18 and October 18.

Mercantile Bank Corporation used the proceeds of the Series A Floating Rate
Notes to finance the redemption on September 17, 2004 of the $16.0 million of
9.60% Cumulative Preferred Securities issued in 1999 by its business trust
subsidiary, MBWM Capital Trust I. Noninterest expense for the third quarter of
2004 and year-to-date 2004 include an $845,000 ($549,000 after-tax) write-off
associated with the unamortized balance of issuance costs related to the 9.60%
Cumulative Preferred Securities. It is expected that a substantial portion of
the proceeds of the Series B Floating Rate Notes, when issued, will be provided
to the bank by Mercantile Bank Corporation as a capital injection, with the
funds used by the bank in its general funding operations.

FINANCIAL CONDITION

During the first nine months of 2004, our assets increased from $1,203.3 million
on December 31, 2003, to $1,474.9 million on September 30, 2004. This represents
a total increase in assets of $271.6 million, or 22.6%. The asset growth was
comprised primarily of a $215.1 million increase in net loans, an increase of
$24.6 million in cash and cash equivalents and a $23.5 million increase in
securities. The increase in assets was primarily funded by a $242.0 million
growth in deposits and an increase of $30.0 million in Federal Home Loan Bank
advances.


                                       18
<PAGE>

                           MERCANTILE BANK CORPORATION

Commercial loans and leases increased by $191.5 million during the first nine
months of 2004, and at September 30, 2004 totaled $1,130.3 million, or 90.2% of
the total loan and lease portfolio. The continued significant concentration of
the loan and lease portfolio in commercial loans and leases and the rapid growth
of this portion of our lending business is consistent with our stated strategy
of focusing a substantial amount of efforts on "wholesale" banking. Corporate
and business lending continues to be an area of expertise of our senior
management team, and our 15 commercial lenders have over 220 years of combined
commercial lending experience, ten of whom have 15 years or more experience. Of
each of the loan categories that we originate, commercial loans and leases are
most efficiently originated and managed; thus limiting overhead costs by
necessitating the attention of fewer full-time employees. Our commercial lending
business generates the greatest amount of local deposits, and is our primary
source of demand deposits.

Residential mortgage loans and consumer loans increased by $26.0 million and
$0.3 million, respectively, during the first nine months of 2004. As of
September 30, 2004, residential mortgage and consumer loans totaled a combined
$123.4 million, or 9.8% of the total loan and lease portfolio. Although we plan
to increase our non-commercial loan portfolios in future periods, given our
wholesale banking strategy, we expect the commercial sector of our lending
efforts and resultant assets to remain the dominant loan portfolio category.

Management believes the quality of our loan and lease portfolio remains strong.
Net loan and lease charge-offs during the first nine months of 2004 totaled $1.0
million, or 0.12% of average total loans and leases on an annualized basis.
During the first nine months of 2003, net loan and lease charge-offs totaled
$0.3 million, or 0.04% of average total loans and leases on an annualized basis.
A majority of the $1.0 million net loan and lease charge-offs during the first
nine months of 2004 is primarily attributable to one commercial loan
relationship. Nonperforming assets at September 30, 2004 totaled $3.0 million,
or 0.20% of period-ending total assets. At December 31, 2003, nonperforming
assets totaled $1.8 million, or 0.15% of period-ending total assets. The $1.2
million increase in nonperforming assets during the first nine months of 2004 is
primarily attributable to one commercial loan relationship unrelated to the one
noted above. We believe we have instilled a strong credit culture within our
lending departments as it pertains to the underwriting and administration
processes, which in part is reflected in our loan and lease net charge-off and
delinquency ratios. Over 98% of the loan portfolio consists of loans extended
directly to companies and individuals doing business and residing within our
market area. The remaining portion is comprised of commercial loans participated
with certain commercial banks outside the immediate area, which we underwrite
using the same loan underwriting criteria as though our bank was the originating
bank.

Securities increased $23.5 million during the first nine months of 2004.
Purchases during the first nine months of 2004 totaled $46.0 million. Proceeds
from the sales of securities totaled $1.7 million, while proceeds from the
maturities, calls and repayments of securities totaled $20.9 million. At
September 30, 2004, the net unrealized gain on available for sale securities
equaled $0.6 million, compared to a net unrealized gain of $0.3 million at
December 31, 2003. Our securities portfolio consists of U.S. Government Agency
bonds, mortgage-backed securities issued or guaranteed by U.S. Government
Agencies, investment-grade tax-exempt municipal securities and Federal Home Loan
Bank of Indianapolis ("FHLBI") stock.

Cash and cash equivalents increased $24.6 million during the first nine months
of 2004, totaling $41.1 million on September 30, 2004. Cash and due from bank
balances were up $19.0 million, federal funds sold increased $5.5 million and
short-term investments were relatively unchanged. Our commercial lending and
wholesale funding focus results in relatively large day-to-day fluctuations of
our cash and cash equivalent balances. The average cash and cash equivalents
during the first nine months of 2004 equaled $37.1 million, well above the
relatively low balance of $16.6 million on December 31, 2003.


                                       19
<PAGE>

                           MERCANTILE BANK CORPORATION

Premises and equipment at September 30, 2004 equaled $21.3 million, an increase
of $6.0 million since December 31, 2003, and an increase of $8.8 million since
March 31, 2003. The vast majority of the increase relates to our construction of
two new banking facilities. On April 30, 2003, our bank purchased an existing
building situated on 2.75 acres of land located about two miles north of
downtown Grand Rapids, Michigan for $1.3 million. The building was demolished,
and we are now in the construction phase of building a new four-story facility
on this property. This facility will serve as the new location for our current
downtown leased facility, which includes our commercial lending function, and
will house the administration and loan operations functions currently housed at
other of our locations. Expected completion date is during the second quarter of
2005. On September 29, 2003, our bank purchased ten acres of land located in
Holland, Michigan for $0.9 million. We constructed a new two-story facility on
this site to serve as the new location for our former full-service branch and
lending office that had been operating out of a leased facility. This newly
constructed facility opened on October 25, 2004.

Deposits increased $242.0 million during the first nine months of 2004, totaling
$1,144.9 million at September 30, 2004. Local deposits increased $79.1 million,
or 25.4% and out-of-area deposits increased $162.9 million, or 27.5%. As a
percent of total deposits, local deposits decreased slightly from 34.5% on
December 31, 2003, to 34.1% on September 30, 2004. Noninterest-bearing demand
deposits, comprising 9.7% of total deposits, increased $34.5 million during the
first nine months of 2004. Savings deposits (12.1% of total deposits) increased
$36.6 million, interest-bearing checking deposits (3.1% of total deposits)
increased $1.2 million and money market deposit accounts (0.9% of total
deposits) increased $0.5 million during the first nine months of 2004. Local
certificates of deposit, comprising 8.3% of total deposits, increased $5.1
million during the first nine months of 2004.

Out-of-area deposits increased $162.9 million during the first nine months of
2004, totaling $754.5 million as of September 30, 2004. Out-of-area deposits
consist primarily of certificates of deposit obtained from depositors located
outside our market area and placed by deposit brokers for a fee, but also
include certificates of deposit obtained from the deposit owners directly.
Out-of-area deposits are utilized to support our asset growth, and are generally
a lower cost source of funds when compared to the deposit interest rates that
would have to be offered in the local market to generate a sufficient level of
funds. During the first nine months of 2004 rates paid on new out-of-area
certificates of deposit were generally only slightly higher than the rates paid
on new certificates of deposit issued to local customers. Overhead costs
associated with the out-of-area deposits are considerably less than the overhead
costs that would be incurred to administer a similar level of local deposits.
Although local deposits have and are expected to increase as new business,
governmental and consumer deposit relationships are established, our relatively
high reliance on out-of-area deposits will likely continue.

Securities sold under agreements to repurchase ("repurchase agreements")
decreased $2.9 million during the first nine months of 2004, totaling $46.7
million as of September 30, 2004. As part of our sweep account program,
collected funds from certain business noninterest-bearing checking accounts are
invested into over-night interest-bearing repurchase agreements. Although not
considered a deposit account and therefore not afforded federal deposit
insurance, the repurchase agreements have characteristics very similar to that
of our business checking deposit accounts.

FHLBI advances increased by $30.0 million during the first nine months of 2004,
totaling $120.0 million as of September 30, 2004. The advances are
collateralized by residential mortgage loans, first mortgage liens on
multi-family residential property loans and first mortgage liens on commercial
real estate property loans, and substantially all other assets of our bank,
under a blanket lien arrangement. Our borrowing line of credit as of September
30, 2004 totaled $195.7 million, with availability of approximately $65.0
million. FHLBI advances, along with out-of-area deposits, are the primary
components of our wholesale funding program.


                                       20
<PAGE>

                           MERCANTILE BANK CORPORATION

LIQUIDITY

Liquidity is measured by our ability to raise funds through deposits, borrowed
funds, capital or cash flow from the repayment of loans and securities. These
funds are used to meet deposit withdrawals, maintain reserve requirements, fund
loans and support our operations. Liquidity is primarily achieved through the
growth of deposits (both local and out-of-area) and advances from the FHLBI, as
well as liquid assets such as securities available for sale, matured securities,
and federal funds sold. Asset and liability management is the process of
managing our balance sheet to achieve a mix of earning assets and liabilities
that maximizes profitability, while providing adequate liquidity.

Our liquidity strategy is to fund loan growth with deposits, repurchase
agreements and FHLBI advances, and to maintain an adequate level of short- and
medium-term investments to meet typical daily loan and deposit activity.
Although deposit and repurchase agreement growth from customers located in our
market area have generally consistently increased, this growth has not been
sufficient to meet our substantial loan growth and provide monies for additional
investing activities. To assist in providing the additional needed funds, we
have regularly obtained monies from wholesale funding sources. Wholesale funds,
comprised primarily of certificates of deposit from customers outside of our
market area and advances from the FHLBI, totaled $874.5 million, or 66.7% of
combined deposits and borrowed funds as of September 30, 2004. As of December
31, 2003, wholesale funds totaled $681.6 million, or 65.4% of combined deposits
and borrowed funds. Reliance on wholesale funds is expected to continue due to
our anticipated future asset growth.

As a member of the FHLBI, our bank has access to the FHLBI's borrowing programs.
At September 30, 2004, advances from the FHLBI totaled $120.0 million, up from
the $90.0 million outstanding at December 31, 2003. Based on available
collateral at September 30, 2004, our bank could borrow an additional $65.0
million.

Our bank has the ability to borrow money on a daily basis through correspondent
banks via established unsecured federal funds purchased lines, totaling $50.0
million as of September 30, 2004. The average balance of federal funds purchased
during the first nine months of 2004 equaled $6.1 million, compared to a $6.3
million average federal funds sold position during the same time period.

In addition to typical loan funding and deposit flow, we must maintain liquidity
to meet the demands of certain unfunded loan commitments and standby letters of
credit. As of September 30, 2004, our bank had a total of $308.2 million in
unfunded loan commitments and $58.0 million in unfunded standby letters of
credit. Of the total unfunded loan commitments, $267.1 million were commitments
available as lines of credit to be drawn at any time as customers' cash needs
vary, and $41.1 million were for loan commitments expected to close and become
funded within the next three to six months. We monitor fluctuations in loan
balances and commitment levels, and include such data in managing our overall
liquidity.

CAPITAL RESOURCES

Shareholders' equity is a noninterest-bearing source of funds that provides
support for asset growth. Shareholders' equity increased by $7.7 million during
the first nine months of 2004, from $130.2 million on December 31, 2003, to
$137.9 million at September 30, 2004. The increase is primarily attributable to
net income of $9.2 million recorded during the first nine months of 2004.
Shareholders' equity was negatively impacted during the first nine months of
2004 by the payment of cash dividends totaling $1.9 million, slightly offset by
a $0.1 million mark-to-market adjustment for available for sale securities as
defined in SFAS No. 115. Shareholders' equity also increased $0.3 million from
the issuance of 30,782 new shares of common stock resulting from our dividend
reinvestment plan, employee stock purchase plan and stock option exercises.

                                       21
<PAGE>

                           MERCANTILE BANK CORPORATION


We are subject to regulatory capital requirements primarily administered by
federal bank regulatory agencies. Failure to meet the various capital
requirements can initiate regulatory action that could have a direct material
effect on the financial statements. The capital ratios of the company and our
bank as of September 30, 2004 and December 31, 2003 are disclosed under Note 9
of the Notes to Consolidated Financial Statements.

Our and our bank's ability to pay cash and stock dividends is subject to
limitations under various laws and regulations and to prudent and sound banking
practices. We declared a 5% stock dividend on April 7, 2004, that was
distributed on May 3, 2004 to record holders as of April 16, 2004. We paid a
$0.09 per share cash dividend on our common stock on March 10, 2004, June 10,
2004 and September 10, 2004. On October 6, 2004, we declared a $0.09 per share
cash dividend payable on December 10, 2004, to record holders as of November 10,
2004.

RESULTS OF OPERATIONS

Net income for the third quarter of 2004 was $3.1 million ($0.43 per basic and
diluted share), which represents a 39.8% increase over net income of $2.2
million ($0.38 per basic share and $0.37 per diluted share) recorded during the
third quarter of 2003. Net income for the first nine months of 2004 was $9.2
million ($1.29 per basic share and $1.26 per diluted share), which represents a
31.9% increase over net income of $7.0 million ($1.22 per basic share and $1.19
per diluted share) recorded during the first nine months of 2003. Per share
amounts reflect the dilutive impact of the common stock sale completed during
the latter part of 2003, with average diluted shares outstanding up 23.1% in the
third quarter of 2004 and and 24.8% year-to-date 2004 when compared to the same
time periods in 2003, respectively. The improvement in net income during both
time periods is primarily due to an increase in net interest income and greater
operating efficiency.

Net income for the third quarter of 2004 and the first nine months of 2004
include an $845,000 ($549,000 after-tax) write-off associated with the
unamortized balance of issuance costs related to the redemption of the $16.0
million of 9.60% Cumulative Preferred Securities issued in 1999 by our business
trust subsidiary, MBWM Capital Trust I. Excluding this one-time expense, net
income for the third quarter of 2004 was $3.7 million ($0.51 per basic share and
$0.50 per diluted share), which represents a 64.4% increase over net income of
$2.2 million ($0.38 per basic share and $0.37 per diluted share) recorded during
the third quarter of 2003. Excluding this one-time expense, net income for the
first nine months of 2004 was $9.8 million ($1.36 per basic share and $1.34 per
diluted share), which represents a 39.7% increase over net income of $7.0
million ($1.22 per basic share and $1.19 per diluted share) recorded during the
first nine months of 2003.


                                       22
<PAGE>

                           MERCANTILE BANK CORPORATION


Interest income during the third quarter of 2004 was $17.8 million, an increase
of 28.6% over the $13.9 million earned during the third quarter of 2003.
Interest income during the first nine months of 2004 was $49.3 million, an
increase of 23.4% over the $40.0 million earned during the first nine months of
2003. The growth in interest income during both time periods is primarily
attributable to an increase in earning assets, which more than offset the
negative impact of an overall declining interest rate environment. During the
third quarter of 2004, earning assets averaged $1,362.0 million, $332.8 million
higher than average earning assets of $1,029.2 million during the third quarter
of 2003. Average loans were up $300.3 million and securities increased $28.9
million. During the first nine months of 2004, earning assets averaged $1,276.4
million, $317.3 million higher than average earning assets of $959.1 million
during the same time period in 2003. Average loans were up $294.5 million and
securities increased $21.9 million. Negatively impacting the growth in interest
income was the decline in yield on earning assets. During the third quarter of
2004 and 2003, earning assets had a weighted average yield (tax
equivalent-adjusted basis) of 5.26% and 5.49%, respectively. During the first
nine months of 2004 and 2003 earning assets had a weighted average yield of
4.99% and 5.38%, respectively. The decrease in weighted average yields during
both time periods is primarily due to a decline in market interest rates.
However, over the past several months market interest rates have begun to
increase which has had a positive impact on our asset yield. The third quarter
of 2004 asset yield is 9 basis points higher than the second quarter of 2004
asset yield, primarily resulting from recent increases in the prime rate. With
approximately 78% of our total loans and leases tied to the prime rate, we
expect our asset yield to benefit from potential additional future increases in
market interest rates stemming from possible further increases in the target
federal funds rate by the Federal Open Market Committee.

Interest expense during the third quarter of 2004 was $7.0 million, an increase
of 19.9% over the $5.8 million expensed during the third quarter of 2003.
Interest expense during the first nine months of 2004 was $19.0 million, an
increase of 7.5% over the $17.6 million expensed during the first nine months of
2003. The increase in interest expense is primarily attributable to the increase
in interest-bearing liabilities necessitated by the growth in assets, partially
offset by a decline in the cost of funds. During the third quarter of 2004,
interest-bearing liabilities averaged $1,186.8 million, $265.0 million higher
than average interest-bearing liabilities of $921.8 million during the third
quarter of 2003. Interest-bearing deposits were up $195.8 million and FHLBI
advances increased $62.6 million. During the first nine months of 2004,
interest-bearing liabilities averaged $1,111.7 million, $252.9 million higher
than average interest-bearing liabilities of $858.8 million during the same time
period in 2003. Interest-bearing deposits were up $172.8 million and FHLBI
advances increased $73.2 million. During the third quarter of 2004 and 2003,
interest-bearing liabilities had a weighted average rate of 2.33% and 2.50%,
respectively. During the first nine months of 2004 and 2003, interest-bearing
liabilities had a weighted average rate of 2.28% and 2.74%, respectively. The
decrease in the weighted average cost of interest-bearing liabilities during
both time periods is primarily due to the decline in market interest rates.
However, over the past several months market interest rates have begun to
increase which has had a negative impact on our cost of interest-bearing
liabilities. The third quarter of 2004 cost of interest-bearing liabilities is
10 basis points higher than the second quarter of 2004 cost of interest-bearing
liabilities. We expect our cost of interest-bearing liabilities to continue to
increase in future periods as maturing fixed rate certificates of deposits and
FHLBI advances mature and are renewed or replaced with certificates of deposit
and FHLBI advances at rates higher than the rates on the maturing instruments.
In addition, potential further increases in market interest rates would also
likely result in further increases in the cost of our interest-bearing
liabilities.


                                       23
<PAGE>

                           MERCANTILE BANK CORPORATION


Net interest income during the third quarter of 2004 was $10.9 million, an
increase of 34.9% over the $8.0 million earned during the third quarter of 2003.
Net interest income during the first nine months of 2004 was $30.3 million, an
increase of 35.9% over the $22.3 million earned during the same time period in
2003. The increase in net interest income is primarily due to the growth in
earning assets, combined with a slightly improved net interest margin. The net
interest margin during the third quarter of 2004 was 3.23%, compared to the
3.19% during the third quarter of 2003. During the first nine months of 2004 the
net interest margin was 3.24%, compared to 3.20% during the same time period in
2003.

The following table sets forth certain information relating to our consolidated
average interest earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the third
quarter of 2004 and 2003. Such yields and costs are derived by dividing income
or expense by the average daily balance of assets or liabilities, respectively,
for the period presented. Tax-exempt securities interest income and yield have
been computed on a tax equivalent basis using a marginal tax rate of 35%.
Securities interest income was increased by $243,000 and $207,000 in the third
quarter of 2004 and 2003, respectively, for this adjustment.


<Table>
<Caption>
                                                             Quarters ended September 30,
                               -----------------------------------------------------------------------------------
                                                2004                                        2003
                               ---------------------------------------     ---------------------------------------
                                 Average                       Average       Average                       Average
                                 Balance       Interest         Rate         Balance        Interest         Rate
                               -----------    -----------      -------     -----------    -----------      -------
                                                               (dollars in thousands)
<S>                            <C>            <C>                <C>       <C>            <C>                <C>
ASSETS
   Loans and leases            $ 1,219,325    $    16,193        5.27%     $   918,966    $    12,679        5.47%
   Securities                      134,418          1,841        5.48          105,485          1,371        5.20
   Federal funds sold                7,634             26        1.34            4,309             11        0.97
   Short term investments              609              2        0.90              444              0        0.50
                               -----------    -----------                  -----------    -----------
     Total interest-earning
       assets                    1,361,986         18,062        5.26        1,029,204         14,061        5.49

   Allowance for loan losses       (16,684)                                    (12,842)
   Other assets                     83,757                                      66,464
                               -----------                                 -----------
     Total assets              $ 1,429,059                                 $ 1,082,826
                               ===========                                 ===========


LIABILITIES AND
  SHAREHOLDERS' EQUITY
   Interest-bearing deposits   $   994,777    $     5,706        2.28%     $   798,947    $     4,952        2.46%
   Short-term borrowings            54,777            220        1.59           49,437            168        1.35
   FHLB advances                   119,130            652        2.14           56,467            274        1.90
   Long-term borrowings             18,124            385        8.50           16,958            415        9.51
                               -----------    -----------                  -----------    -----------
     Total interest-bearing
       liabilities               1,186,808          6,963        2.33          921,809          5,809        2.50
   Noninterest-bearing
     deposits                       99,389                                      68,344
   Other liabilities                 6,572                                       6,163
   Shareholders' equity            136,290                                      86,510
                               -----------                                 -----------
     Total liabilities and
       shareholders' equity    $ 1,429,058                                 $ 1,082,826
                               ===========    -----------                  ===========    -----------

   Net interest income                        $    11,099                                 $     8,252
                                              ===========                                 ===========
   Net interest rate spread                                      2.93%                                       2.99%
                                                                 ====                                        ====
   Net interest rate spread
     on average assets                                           3.08%                                       3.02%
                                                                 ====                                        ====
   Net interest margin on
     earning assets                                              3.23%                                       3.19%
                                                                 ====                                        ====
</Table>


                                       24
<PAGE>


                           MERCANTILE BANK CORPORATION


Provisions to the allowance for loan and lease losses during the third quarter
of 2004 were $1.2 million, compared to the $1.4 million that was expensed during
the third quarter of 2003. The decline primarily reflects a lower volume of loan
and lease growth during the third quarter of 2004 compared to the volume of loan
and lease growth during the third quarter of 2003. Provisions to the allowance
for loan and lease losses during the first nine months of 2004 were $3.7
million, compared to the $2.9 million that was expensed during the same time
period in 2003. The increase primarily reflects the higher volume of loan and
lease growth during the first nine months of 2004 compared to the volume of loan
and lease growth during the first nine months of 2003. Loan and lease growth
during the third quarter of 2004 was $68.4 million, compared to loan and lease
growth of $106.2 million during the third quarter of 2003. Loan and lease growth
during the first nine months of 2004 was $217.8 million, compared to loan and
lease growth of $200.6 million during the same time period in 2003. Net loan and
lease charge-offs of $467,000 were recorded during the third quarter of 2004,
compared to net loan and lease charge-offs of $56,000 during the third quarter
of 2003. During the first nine months of 2004 net loan and lease charge-offs
totaled $1,008,000, compared to net loan and lease charge-offs of $258,000
during the same time period in 2003. The allowance for loan and lease losses as
a percentage of total loans outstanding as of September 30, 2004 was 1.36%,
compared to 1.39% at September 30, 2003.

In each accounting period, the allowance for loan and lease losses is adjusted
to the amount believed necessary to maintain the allowance for loan and lease
losses at adequate levels. Through the loan review and credit departments, we
attempt to allocate specific portions of the allowance for loan and lease losses
based on specifically identifiable problem loans and leases. The evaluation of
the allowance for loan and lease losses is further based on, although not
limited to, consideration of the internally prepared Allowance Analysis,
composition of the loan and lease portfolio, third party analysis of the loan
administration processes and loan portfolio and general economic conditions. In
addition, the rapid growth of the loan and lease portfolio is taken into
account.

The Allowance Analysis, used since the inception of our bank and completed
monthly, applies reserve allocation factors to outstanding loan and lease
balances to calculate an overall allowance dollar amount. For commercial loans
and leases, which continue to comprise a vast majority of our loan and lease
portfolio, reserve allocation factors are based upon the loan ratings as
determined by our comprehensive loan rating paradigm that is administered by our
loan review function. For retail loans, reserve allocation factors are based
upon the type of credit. The reserve allocation factors are based on the
experience of senior management making similar loans in the same community over
the past 15 years. The Allowance Analysis is reviewed regularly by senior
management and the Board of Directors and is adjusted periodically based upon
identifiable trends and experience.

Noninterest income during the third quarter of 2004 was $1.2 million, compared
to the $1.1 million earned during the third quarter of 2003. Noninterest income
during the first nine months of 2004 was $3.2 million, compared to the $3.3
million earned during the same time period in 2003. The relatively unchanged
level of noninterest income during both time periods primarily reflects a higher
level of fee income of virtually all products and services that was offset by a
lower level of income from mortgage banking activities. There were no securities
gains during the third quarter of 2004 compared to securities gains of $59,000
recorded during the third quarter of 2003, and securities gains totaled $78,000
during the first nine months of 2004 compared to $271,000 during the same time
period in 2003. Gains on the sale of SBA-guaranteed loans totaled $135,000
during the third quarter of 2004, and totaled $175,000 during the first nine
months of 2004. There were no gains on the sale of SBA-guaranteed loans during
the third quarter of 2003 or during the first nine months of 2003.


                                       25
<PAGE>

                           MERCANTILE BANK CORPORATION


Noninterest expense during the third quarter of 2004 was $6.4 million, compared
to the $4.8 million expensed during the third quarter of 2003. Noninterest
expense during the first nine months of 2004 was $17.0 million, compared to the
$13.2 million expensed during the same time period in 2003. Employee salary and
benefit expenses were $0.6 million higher during the third quarter of 2004 than
the level expensed during the third quarter of 2003, and were $2.1 million
higher during the first nine months of 2004 than the level expensed during the
first nine months of 2003. The increases during both time periods primarily
resulted from the hiring of additional staff and merit annual pay increases. The
level of full-time equivalent employees increased from 156 at September 30, 2003
to 190 as of September 30, 2004. Including the $845,000 one-time expense
associated with the redemption of the 9.60% Cumulative Preferred Securities,
other overhead costs increased $1.1 million in the third quarter of 2004 over
the level expensed in the third quarter of 2003, and increased $1.7 million
during the first nine months of 2004 over the level expensed during the first
nine months of 2003. Excluding the one-time charge, other overhead costs
increased $0.3 million in the third quarter of 2004 over the level expensed in
the third quarter of 2003, and increased $0.9 million during the first nine
months of 2004 over the level expensed during the first nine months of 2003,
primarily reflecting the additional expenses required to administer our
significantly increased asset base and size.

Monitoring and controlling noninterest costs, while at the same time providing
high quality service to customers, is a key component to our business strategy.
While the dollar volume of noninterest costs has increased, the rate of growth
has been lower than the rate of increase in net interest income and noninterest
income. Noninterest expenses (excluding the one-time charge) increased $0.8
million during the third quarter of 2004 over the amount expensed during the
third quarter of 2003, and increased $3.0 million during the first nine months
of 2004 over the amount expensed during the first nine months of 2003. However,
net revenues (net interest income plus noninterest income) increased at a
substantially higher level of $2.9 million and $7.9 million during the same time
periods, respectively.

Federal income tax expense was $1.3 million and $3.7 million during the third
quarter and first nine months of 2004, respectively. Federal income tax expense
was $0.7 million and $2.6 million during the third quarter and first nine months
of 2003, respectively. The increases during both time periods primarily results
from the increase in net income before federal income tax.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure is interest rate risk and, to a lesser extent,
liquidity risk. All of our transactions are denominated in U.S. dollars with no
specific foreign exchange exposure. We have only limited agricultural-related
loan assets and therefore have no significant exposure to changes in commodity
prices. Any impact that changes in foreign exchange rates and commodity prices
would have on interest rates are assumed to be insignificant. Interest rate risk
is the exposure of our financial condition to adverse movements in interest
rates. We derive our income primarily from the excess of interest collected on
our interest-earning assets over the interest paid on our interest-bearing
liabilities. The rates of interest we earn on our assets and owe on our
liabilities generally are established contractually for a period of time. Since
market interest rates change over time, we are exposed to lower profitability if
we cannot adapt to interest rate changes. Accepting interest rate risk can be an
important source of profitability and shareholder value; however, excessive
levels of interest rate risk could pose a significant threat to our earnings and
capital base. Accordingly, effective risk management that maintains interest
rate risk at prudent levels is essential to our safety and soundness.


                                       26
<PAGE>

                           MERCANTILE BANK CORPORATION


Evaluating the exposure to changes in interest rates includes assessing both the
adequacy of the process used to control interest rate risk and the quantitative
level of exposure. Our interest rate risk management process seeks to ensure
that appropriate policies, procedures, management information systems and
internal controls are in place to maintain interest rate risk at prudent levels
with consistency and continuity. In evaluating the quantitative level of
interest rate risk we assess the existing and potential future effects of
changes in interest rates on our financial condition, including capital
adequacy, earnings, liquidity and asset quality.

We use two interest rate risk measurement techniques. The first, which is
commonly referred to as GAP analysis, measures the difference between the dollar
amounts of interest sensitive assets and liabilities that will be refinanced or
repriced during a given time period. A significant repricing gap could result in
a negative impact to our net interest margin during periods of changing market
interest rates. The following table depicts our GAP position as of September 30,
2004 (dollars in thousands):

<Table>
<Caption>
                                             Within        Three to        One to           After
                                              Three         Twelve          Five            Five
                                             Months         Months          Years           Years          Total
                                          -----------     -----------    -----------    -----------     -----------
<S>                                       <C>             <C>            <C>            <C>             <C>
Assets:
   Commercial loans and leases (1)        $   769,215     $    23,084    $   313,248    $    24,719     $ 1,130,266
   Residential real estate loans               75,228           1,339         29,247         12,492         118,306
   Consumer loans                               1,146             651          3,279             65           5,141
   Investment securities (2)                    6,916           1,019         18,172        118,912         145,019
   Short-term investments                       5,827                                                         5,827
   Allowance for loan and leases losses                                                     (17,045)        (17,045)
   Other assets                                                                              87,435          87,435
                                          -----------     -----------    -----------    -----------     -----------
     Total assets                             858,332          26,093        363,946        226,578       1,474,949

Liabilities:
   Interest-bearing checking                   35,435                                                        35,435
   Savings                                    138,337                                                       138,337
   Money market accounts                        9,974                                                         9,974
   Time deposits < $100,000                    32,952          42,509         37,845                        113,306
   Time deposits $100,000 and over            133,783         378,432        224,548                        736,763
   Short-term borrowings                       46,691                                                        46,691
   FHLB advances                               30,000          50,000         40,000                        120,000
   Long-term borrowings                        18,003                                                        18,003
   Noninterest-bearing checking                                                             111,042         111,042
   Other liabilities                                                                          7,463           7,463
                                          -----------     -----------    -----------    -----------     -----------
     Total liabilities                        445,175         470,941        302,393        118,505       1,337,014
Shareholders' equity                                                                        137,935         137,935
                                          -----------     -----------    -----------    -----------     -----------
Total sources of funds                        445,175         470,941        302,393        256,440       1,474,949
                                          -----------     -----------    -----------    -----------     -----------

Net asset (liability) GAP                 $   413,157     $  (444,848)   $    61,553    $   (29,862)
                                          ===========     ===========    ===========    ===========

Cumulative GAP                            $   413,157     $   (31,691)   $    29,862
                                          ===========     ===========    ===========

Percent of cumulative GAP to
  total assets                                   28.0%          (2.1)%           2.0%
                                          ===========     ===========    ===========
</Table>

(1)  Floating rate loans that are currently at interest rate floors are treated
     as fixed rate loans and are reflected using maturity date and not next
     repricing date.

(2)  Mortgage-backed securities are categorized by expected final maturities
     based upon prepayment trends as of September 30, 2004.



                                       27
<PAGE>

                           MERCANTILE BANK CORPORATION


The second interest rate risk measurement we use is commonly referred to as net
interest income simulation analysis. We believe that this methodology provides a
more accurate measurement of interest rate risk than the GAP analysis, and
therefore, serves as our primary interest rate risk measurement technique. The
simulation model assesses the direction and magnitude of variations in net
interest income resulting from potential changes in market interest rates. Key
assumptions in the model include prepayment speeds on various loan and
investment assets; cash flows and maturities of interest-sensitive assets and
liabilities; and changes in market conditions impacting loan and deposit volume
and pricing. These assumptions are inherently uncertain, subject to fluctuation
and revision in a dynamic environment; therefore, the model cannot precisely
estimate net interest income or exactly predict the impact of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to timing, magnitude, and frequency of interest rate changes and
changes in market conditions and the company's strategies, among other factors.

We conducted multiple simulations as of September 30, 2004, whereby it was
assumed that a simultaneous, instant and sustained change in market interest
rates occurred. The following table reflects the suggested impact on our net
interest income over the next twelve months, which is well within our policy
parameters established to manage and monitor interest rate risk.

<Table>
<Caption>
                                                   Dollar Change In                Percent Change In
     Interest Rate Scenario                       Net Interest Income             Net Interest Income
     ----------------------                       -------------------             -------------------
<S>                                               <C>                             <C>
     Interest rates down 200 basis points            $  (2,469,000)                       (5.9)%

     Interest rates down 100 basis points               (1,309,000)                       (3.1)

     No change in interest rates                          (473,000)                       (1.1)

     Interest rates up 100 basis points                    764,000                         1.9

     Interest rates up 200 basis points                  2,034,000                         4.8
</Table>


The results detailed above have been influenced by the basis risk contained
within our earning assets and interest-bearing liabilities. Interest rates on
our floating rate loans, comprising approximately 64% of total assets as of
September 30, 2004, are tied to the prime rate. Interest rates on our wholesale
funds, and to a lesser degree on our local interest-bearing deposits, closely
mirror shorter-term U.S. Treasury and Libor interest rates. Since the second
quarter of 2004, U.S. Treasury and Libor interest rates have increased
significantly, reflecting the interest rate market's reaction to the Federal
Reserve decision to raise the target federal funds rate by 25 basis points on
three separate occasions since June 30, 2004, combined with the interest rate
market's expectations that the Federal Reserve would raise the federal funds
target rate even higher in future periods. For example, from the period of April
1, 2004 through September 30, 2004, the Federal Reserve had raised the targeted
federal funds rate by 75 basis points, while the interest rate on one year
brokered CDs and FHLB bullet advances had increased by about 100 basis points.
In conducting the net interest income simulation we used brokered CD and FHLB
bullet advance rates in effect as of September 30, 2004. Therefore, it is likely
that future net interest income would be higher than what is detailed above.


                                       28
<PAGE>

                           MERCANTILE BANK CORPORATION


In addition to changes in interest rates, the level of future net interest
income is also dependent on a number of other variables, including: the growth,
composition and absolute levels of loans, deposits, and other earning assets and
interest-bearing liabilities; economic and competitive conditions; potential
changes in lending, investing and deposit gathering strategies; client
preferences; and other factors.


ITEM 4. CONTROLS AND PROCEDURES

As of September 30, 2004, an evaluation was performed under the supervision of
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including our Chief Executive Officer and Chief Financial
Officer, concluded that our disclosure controls and procedures were effective as
of September 30, 2004.


                                       29
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various legal proceedings that are
incidental to our business. In our opinion, we are not a party to any current
legal proceedings that are material to our financial condition, either
individually or in the aggregate.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


<Table>
<Caption>
    EXHIBIT NO.                EXHIBIT DESCRIPTION
    -----------                -------------------
<S>               <C>
        3.1       Our Articles of Incorporation are incorporated by reference
                  to Exhibit 3.1 of our Form 10-Q for the quarter ended
                  June 30, 2004

        3.2       Our Amended and Restated Bylaws dated as of January 16, 2003
                  are incorporated by reference to Exhibit 3.2 of our
                  Registration Statement on Form S-3 (Commission File No.
                  333-103376) that became effective on February 21, 2003

       10.1       2004 Employee Stock Option Plan

       10.2       Form of Stock Option Agreement for options issued under the
                  2004 Employee Stock Option Plan

       10.3       Nonlender Bonus Plan

       11         Statement re Computation of Per Share Earnings

       31         Rule 13a-14(a) Certifications

       32.1       Section 1350 Chief Executive Officer Certification

       32.2       Section 1350 Chief Financial Officer Certification
</Table>


                                       30
<PAGE>



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 5, 2004.


                               MERCANTILE BANK CORPORATION



                               By: /s/ Gerald R. Johnson, Jr.
                                   ---------------------------------------------
                               Gerald R. Johnson, Jr.
                               Chairman of the Board and Chief Executive Officer
                               (Principal Executive Officer)


                               By: /s/ Charles E. Christmas
                                   ---------------------------------------------
                               Charles E. Christmas
                               Senior Vice President, Chief Financial Officer
                               and Treasurer
                               (Principal Financial and Accounting Officer)



                                       31
<PAGE>


                                  EXHIBIT INDEX


<Table>
<Caption>
    EXHIBIT NO.                EXHIBIT DESCRIPTION
    -----------                -------------------
<S>               <C>
        3.1       Our Articles of Incorporation are incorporated by reference
                  to Exhibit 3.1 of our Form 10-Q for the quarter ended
                  June 30, 2004

        3.2       Our Amended and Restated Bylaws dated as of January 16, 2003
                  are incorporated by reference to Exhibit 3.2 of our
                  Registration Statement on Form S-3 (Commission File No.
                  333-103376) that became effective on February 21, 2003

       10.1       2004 Employee Stock Option Plan

       10.2       Form of Stock Option Agreement for options issued under the
                  2004 Employee Stock Option Plan

       10.3       Nonlender Bonus Plan

       11         Statement re Computation of Per Share Earnings

       31         Rule 13a-14(a) Certifications

       32.1       Section 1350 Chief Executive Officer Certification

       32.2       Section 1350 Chief Financial Officer Certification
</Table>


                                       32


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>k88686exv10w1.txt
<DESCRIPTION>2004 EMPLOYEE STOCK OPTION PLAN
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1

                           MERCANTILE BANK CORPORATION

                         2004 EMPLOYEE STOCK OPTION PLAN

                             -----------------------

                      As adopted by the Board of Directors
                              on February 12, 2004

                             -----------------------


ARTICLE I - PURPOSE

         The purpose of the 2004 Employee Stock Option Plan (the "Plan") of
Mercantile Bank Corporation (the "Company") is to enable officers and other
employees of the Company or any Subsidiary to participate in the Company's
future growth and profitability by offering them long-term performance-based
incentive compensation. The Plan also provides a means through which the Company
and its Subsidiaries can attract and retain key employees.

ARTICLE II - DEFINITIONS

         2.1 The following terms have the meaning described below when used in
the Plan:

         (a) "Board of Directors" shall mean the board of directors of the
Company.

         (b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and as it may be further amended from time to time.

         (c) "Common Stock" shall mean the Common Stock of the Company.

         (d) "Company" shall mean Mercantile Bank Corporation.

         (e) "Fair Market Value" on a particular date shall mean the average of
the highest and lowest sales prices of shares of the Common Stock reported on
The Nasdaq Stock Market (or any successor exchange or system that is the primary
exchange or system for trading of the Common Stock) on such date, or if The
Nasdaq Stock Market (or any such successor) is closed on that date, the last
preceding date on which The Nasdaq Stock Market (or any such successor) was open
for trading and on which shares of the Common Stock were traded. For purposes of
determining Fair Market Value, if there is only one sale of the Common Stock
reported on the applicable date, the sales price for such sale shall be used
instead, as though it were the average of the highest and lowest sales prices.
If for any reason it is not practical for the Fair Market Value to be determined
as provided for above in this paragraph, Fair Market Value shall be determined
by any fair and reasonable means prescribed by the Board of Directors.


<PAGE>

         (f) "Incentive Stock Option" shall mean a stock option granted under
Article VI that is intended to meet the requirements of Section 422 of the Code.

         (g) "Non-Qualified Stock Option" shall mean a stock option granted
under Article VI that is not intended to be an Incentive Stock Option.

         (h) "Option" shall mean an Incentive Stock Option or Non-Qualified
Stock Option.

         (i) "Participant" shall mean an eligible employee who has been granted
an Option.

         (j) "Subsidiary" shall mean with respect to an Incentive Stock Option
any "subsidiary corporation" (as such term is defined in Section 424(f) of the
Code or in any successor provision thereto), and as to a Nonqualified Stock
Option, Subsidiary shall mean any "subsidiary corporation", as described above,
or any other entity in which the Company, either directly or indirectly, owns a
majority voting interest.

ARTICLE III - ADMINISTRATION

         3.1 (a) Stock Option Plan Administration. The Board of Directors of the
Company shall administer the Plan. The Board of Directors shall have full power
and authority to grant to eligible employees (as determined by the Board of
Directors) Options under Article VI of the Plan, to interpret the provisions of
the Plan and any agreements relating to Options granted under the Plan, and to
administer the Plan. In making determinations of eligibility for the Plan, the
Board of Directors may consider the position and responsibilities of the
employee, the nature and value of his or her services and accomplishments, the
present and potential contribution of the employee to the success of the
Company, and such other factors as the Board of Directors may deem relevant.

         (b) Decisions of Board of Directors. All decisions made by the Board of
Directors pursuant to the provisions of the Plan shall be final, conclusive and
binding on all persons, including the Company, its shareholders and employees,
and beneficiaries of employees.

ARTICLE IV - SHARES SUBJECT TO THE PLAN

         4.1 (a) Number of Shares. Subject to adjustment as provided for in
Section 4.1(b), the maximum number of shares of Common Stock with respect to
which Options may be granted shall be 250,000 shares of Common Stock. Shares of
Common Stock shall be made available from the authorized but unissued shares of
the Company (including shares reacquired by the Company). If an Option granted
under the Plan shall expire or terminate for any reason, the shares subject to,
but not delivered, under such Option shall be available for other Options to be
issued under the Plan.

         (b) Adjustments. All as may be deemed appropriate by the Board of
Directors, the aggregate number of shares of Common Stock which may be issued
under the Plan, the number of shares covered by each outstanding Option, and the
price per share in each Option, may be proportionately adjusted for any increase
or decrease in the number of issued shares of Common


                                       2
<PAGE>

Stock of the Company resulting from a subdivision or consolidation of shares or
any other capital adjustment, a stock split, the payment of a stock dividend, or
other increase or decrease in such shares effected without receipt of
consideration by the Company.

ARTICLE V - ELIGIBILITY

         5.1 The persons eligible to participate in the Plan and receive Options
under the Plan are officers and other employees of the Company and its
Subsidiaries, including directors who are full time employees, as determined by
the Board of Directors.

ARTICLE VI - STOCK OPTIONS

         6.1 Grant of Options. Subject to the limitations of the Plan, the Board
of Directors, after such consultation with and consideration of the
recommendations of management as the Board of Directors considers desirable,
shall select from eligible employees Participants to be granted Options and
determine the time when each Option shall be granted and the number of shares
subject to each Option. Options may be either Incentive Stock Options or
Non-Qualified Stock Options. More than one Option may be granted to the same
person. The Board of Directors may not grant a Participant Incentive Stock
Options which in the aggregate are first exercisable during any one calendar
year with respect to Common Stock the aggregate Fair Market Value of which
(determined as of the time of grant) exceeds $100,000.

         6.2 Option Agreements. Each Option under the Plan shall be evidenced by
an option agreement that shall be signed by an officer of the Company and the
Participant and shall contain such provisions as may be approved by the Board of
Directors. Any such option agreement may be amended from time to time as
approved by the Board of Directors and the Participant, provided that the terms
of such option agreement after being amended conform to the terms of the Plan.

         6.3 Option Price. The price at which shares of Common Stock may be
purchased upon exercise of an Option shall be not less than one hundred percent
(100%) of the Fair Market Value of such shares on the date such Option is
granted.

         6.4 Exercise of Options.

         (a) The period during which each Option may be exercised shall be fixed
by the Board of Directors at the time such Option is granted, but such period in
no event shall expire later than ten (10) years from the date the Option is
granted.

         (b) Subject to the terms and conditions of the option agreement and
unless canceled prior to exercise, each Option shall be exercisable in whole or
in part in installments at such time or times as the Board of Directors may
prescribe and specify in the applicable option agreement.

         (c) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment shall be made in cash or through the delivery of shares of Common
Stock of the Company owned by the


                                       3
<PAGE>

Participant for more than six (6) months with a value equal to the total option
price or a combination of cash and such shares. Any shares so delivered shall be
valued at their Fair Market Value on the exercise date. No Participant shall be
deemed to be a holder of any shares subject to any Option prior to the issuance
of such shares upon exercise of such Option.

         6.5 Ten-Percent Shareholder Rule. If a Participant owns more than ten
percent (10%) of the total combined voting power of all classes of the Company
or of any Subsidiary's stock at the time an Incentive Stock Option is granted to
such Participant, the option price to such Participant shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of the Common
Stock on the date of grant, and such Incentive Stock Option by its terms shall
not be exercisable after the expiration of five (5) years from the date of
grant.

         6.6 Non-Transferability of Options. No Option or any rights with
respect thereto shall be subject to any debts or liabilities of a Participant,
nor be assignable or transferable except by Will or the laws of descent and
distribution, nor be exercisable during the Participant's lifetime other than by
the Participant, nor shall Common Stock be issued to or in the name of one other
than the Participant; provided, however, that an Option may after the death or
disability of a Participant be exercised pursuant to Section 6.7; and provided
further that any Common Stock issued to a Participant hereunder may at the
request of the Participant, and with the consent of the Company, be issued in
the names of the Participant and one other person, as joint tenants with right
of survivorship and not as tenants in common, or in the name of a trust for the
benefit of the Participant or for the benefit of the Participant and others.

         6.7 Termination of Employment; Death and Disability. Subject to the
condition that no Option may be exercised in whole or in part after the
expiration of the option period specified in the applicable option agreement:

         (a) Except as hereinafter provided, an Option may be exercised by the
Participant only while such Participant is in the employ of the Company or a
Subsidiary. In the event that the employment of a Participant to whom an Option
has been granted under the Plan shall terminate (except as set forth below) such
Option may be exercised, to the extent that the Option was exercisable on the
date of termination of employment, only until the earlier of three (3) months
after such termination or the original expiration date of the Option; provided,
however, that if termination of employment results from death or total and
permanent disability, such three (3) month period shall be extended to twelve
(12) months.

         (b) In the event of the permanent disability of a Participant as
determined by the Board of Directors, an Option which is otherwise exercisable
may be exercised by the Participant's legal representative or guardian. In the
event of the death of the Participant, an Option which is otherwise exercisable
may be exercised by the person or persons whom the Participant shall have
designated in writing on forms prescribed by and filed with the Board of
Directors ("Beneficiaries"), or, if no such designation has been made, by the
person or persons to whom the Participant's rights shall have passed by Will or
the laws of descent and distribution ("Successors"). The Board of Directors may
require an indemnity and/or such evidence or other assurances as the Board of
Directors in its sole and absolute discretion may deem necessary in connection
with an exercise by a legal representative, guardian, Beneficiary or Successor.


                                       4
<PAGE>

ARTICLE VII - GENERAL PROVISIONS

         7.1 Change in Control.

         (a) In the case of a Change in Control (as defined below) of the
Company, unless the Board of Directors determines otherwise, each Option then
outstanding shall become exercisable in full immediately prior to such Change in
Control.

         (b) Any determination by the Board of Directors made pursuant to
subsection (a) above may be made as to all outstanding Options or only as to
certain Options specified by the Board of Directors and any such determinations
shall be made in cases covered by subparagraphs 7.1(c)(i) and (ii) below prior
to or as soon as practicable after the occurrence of such event and in the cases
covered by subparagraphs 7. 1 (c) (iii) or (iv) prior to the occurrence of such
event.

         (c) A Change in Control shall occur if:

                  (i) Any "person" or "group of persons" as such terms are
defined in Section 13(d) and 14(c) of the Securities Exchange Act of 1934 (the
"Exchange Act") directly or indirectly purchases or otherwise becomes the
"beneficial owner" (as defined in the Exchange Act) or has the right to acquire
such beneficial ownership (whether or not such right is exercised immediately,
with the passage of time or subject to any condition) of voting securities
representing forty percent (40%) or more of the combined voting power of all
outstanding voting securities of the Company,

                  (ii) During any period of two consecutive calendar years the
individuals who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute at least the majority of the
members thereof unless (1) there are five or more directors then still in office
who were directors at the beginning of the period and (2) the election or the
nomination for election by the Company's shareholders of each new director was
approved by at least two-thirds (2/3) of the directors then still in office who
were directors at the beginning of the period,

                  (iii) The shareholders of the Company shall approve an
agreement to merge or consolidate the Company with or into another corporation
as a result of which less than fifty percent (50%) of the outstanding voting
securities of the surviving or resulting entity are or are to be owned by the
former shareholders of the Company (excluding from former shareholders a
shareholder who is or as a result of the transaction in question, becomes an
affiliate as defined in Rule 12b-2 under the Exchange Act of any party to such
consolidation or merger), or

                  (iv) The shareholders of the Company shall approve the sale of
all or substantially all of the Company's business and/or assets to a person or
entity that is not a wholly-owned subsidiary of the Company.

         7.2 No Right of Continued Employment. Neither the establishment of the
Plan, the granting of Options or any action of the Company or of the Board of
Directors shall be held or

                                       5
<PAGE>

construed to confer upon any person any legal right to be continued in the
employ of the Company or its Subsidiaries, each of which expressly reserves the
right to discharge any employee whenever the interest of any such company in its
sole discretion may so require without liability to such company or the Board of
Directors, except as to any rights that may be expressly conferred upon such
employee under the Plan.

         7.3 No Segregation of Cash or Shares. The Company shall not be required
to segregate any shares of Common Stock that may at any time be represented by
Options, and the Plan shall constitute an "unfunded" plan of the Company. No
employee shall have rights with respect to shares of Common Stock prior to the
delivery of such shares. The Company shall not, by any provisions of the Plan,
be deemed to be a trustee of any Common Stock or any other property and the
liabilities of the Company to any employee pursuant to the Plan shall be those
of a debtor pursuant to such contract obligations as are created by or pursuant
to the Plan, and the rights of any employee, former employee or beneficiary
under the Plan shall be limited to those of a general creditor of the Company.

         7.4 Delivery of Shares. No shares shall be delivered pursuant to any
exercise of an Option under the Plan unless the requirements of such laws and
regulations as may be deemed by the Board of Directors to be applicable thereto
are satisfied. All certificates for shares of Common Stock delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Board of Directors may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock exchange
or quotation system upon which the Common Stock is then listed, and any
applicable Federal or state securities law, and the Board of Directors may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

         7.5 Governing Law. The Plan and all determinations made and action
taken pursuant thereto shall be governed by the laws of the State of Michigan
and construed in accordance therewith.

         7.6 Payments and Tax Withholding. The delivery of any shares of Common
Stock under the Plan shall be for the account of the Company and any such
delivery or distribution shall not be made until the recipient shall have made
satisfactory arrangements for the payment of any applicable withholding taxes.


                                       6
<PAGE>


ARTICLE VIII - AMENDMENT AND TERMINATION

         8.1 Amendment or Termination. The Board of Directors may amend or
terminate the Plan provided, however, that no such amendment or termination
shall adversely affect any Option then in effect unless the prior approval of
the Participant so affected is obtained. No Option may be granted under the Plan
after December 31, 2013.


ARTICLE IX - EFFECTIVENESS OF PLAN

         9.1 The Plan was adopted by the Board of Directors on February 12, 2004
subject to the approval of the shareholders of the Company.


ARTICLE X - SEVERABILITY

         10.1 If any provision of the Plan, or any term or condition of any
Option granted under the Plan, is invalid, such provision, term, condition or
application shall to that extent be void (or, in the discretion of the Board of
Directors, such provision, term or condition may be amended so as to avoid such
invalidity or failure), and shall not affect other provisions, terms or
conditions or applications thereof, and to this extent such provisions, terms
and conditions are severable.


                                       7

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>k88686exv10w2.txt
<DESCRIPTION>FORM OF STOCK OPTION AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.2


                             STOCK OPTION AGREEMENT
                       FOR AN INCENTIVE STOCK OPTION UNDER
                         THE MERCANTILE BANK CORPORATION
                         2004 EMPLOYEE STOCK OPTION PLAN


         This STOCK OPTION AGREEMENT is executed and delivered in duplicate, as
of the ____ day of __________, ______ (the "Option Date"), by and between
Mercantile Bank Corporation, a Michigan corporation (the "Company"), and
_________________, an employee of the Company or a Subsidiary (the "Optionee").

         NOW, THEREFORE, in consideration of the mutual covenants of the parties
hereinafter set forth, the parties have agreed and do hereby agree, as follows:

         1. The Company, pursuant to the 2004 Employee Stock Option Plan of the
Company (the "Plan"), which is incorporated into this Agreement by reference,
and subject to the terms and conditions of the Plan, grants to the Optionee an
Incentive Stock Option (the "Option") to purchase ________ shares (the "Optioned
Shares") of Common Stock of the Company at an option price of $_______ per share
(which price represents the fair market value of such Common Stock of the
Company on the Option Date), which Option may be exercised at any time on or
after ____________, 20__ [with respect to _________ shares, and at any time on
or after _________ ___, 20__ with respect to the remaining _________ shares, in
each case] through the date that the Option terminates as set forth in Section 2
below.

         2. The option granted hereby shall terminate, subject to the provisions
of the Plan, no later than at the close of business on _________, 20___.

         3. The option granted by this Agreement shall during the lifetime of
the Optionee be exercisable only by the Optionee in accordance with the terms of
the Plan and shall not be assignable or transferable except by Will or by the
laws of descent and distribution; provided, however, that the option granted by
this Agreement may after the death of the Optionee be exercised pursuant to the
terms of the Plan by a Beneficiary or Beneficiaries of the Optionee as
designated by such Optionee in accordance with Section 6.7(b) of the Plan.

         4. The Optionee agrees to comply with and be bound by all the terms and
conditions contained in the Plan.

<PAGE>


         5. Any notice by the Optionee to the Company under this Agreement shall
be in writing and shall be deemed duly given only upon receipt of the notice by
the Company at its principal executive offices. Any notice by the Company to the
Optionee shall be in writing and shall be deemed duly given if mailed to the
Optionee at the address specified below by the Optionee, or to such other
address as the Optionee may later designate by notice given to the Company.

         6. The Optionee, from time to time during the period when the Option
may by its terms be exercised, may exercise the Option in whole, or in part in
minimum installments of 500 shares, by delivering to the Company: (i) a written
notice signed by the Optionee stating the number of shares that the Optionee has
elected to purchase at that time from the Company, and (ii) cash, a check, bank
draft or money order payable to the Company in an amount equal to the purchase
price of the shares then to be purchased, or (iii) through the delivery of
shares of Common Stock of the Company owned by the Optionee for more than six
months with a value equal to the option price, provided, however, that shares of
Common Stock acquired by the Optionee through the exercise of an incentive stock
option may not be used for payment prior to the expiration of holding periods
prescribed by the Internal Revenue Code, or (iv) by a combination of (ii) and
(iii) above. The value of the shares of the Common Stock delivered shall be the
Fair Market Value of the Common Stock as defined in Section 2.1(e) of the Plan.
The Board of Directors of the Company, acting pursuant to the Plan, if it shall
deem it necessary or desirable for any reason connected with any law or
regulation of any governmental authority relating to the regulation of
securities, may require the Optionee to execute and file with it such evidence
as it may deem necessary that the Optionee is acquiring such shares for
investment and not with a view to their distribution.

         7. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, at the
discretion of the Board of Directors of the Company, shall cause this Option to
terminate, provided that this Option shall be fully vested and exercisable
immediately prior to such dissolution or liquidation, or such merger or
consolidation, and the Optionee has the right to exercise this Option prior to
such dissolution or liquidation, or such merger or consolidation. This Option
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations, or changes of its capital or
business structure, or to merge or consolidate, or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.

         8. The validity and construction of this Agreement shall be governed by
the laws of the State of Michigan.


                                       2

<PAGE>


         The Company has caused this Agreement to be executed by its duly
authorized officer, and the Optionee has executed this Agreement, as of the
Option Date.


                                               MERCANTILE BANK CORPORATION


                                               By:
                                                  -----------------------------

                                                  Its:
                                                      -------------------------


                                               OPTIONEE


                                                  -----------------------------
                                                            (Signature)

                                                  -----------------------------

                                                  -----------------------------

                                                  -----------------------------
                                                         (Print address)


                                       3

<PAGE>

                           MERCANTILE BANK CORPORATION

                                STOCK OPTION PLAN
                           DESIGNATION OF BENEFICIARY

Check One,     ______  I do not wish to designate a Beneficiary at this time;
Complete as            it is my desire that any right to exercise this option
Applicable,            after my death pass by my Will or if applicable, the
and Sign               laws of descent and distribution.

               ______  In the event of my death it is my desire that any right
                       to exercise this option pass to the following designated
                       Beneficiar(ies):

                       Name               Relationship              Address


                       --------------------------------------------------------


                       --------------------------------------------------------

                      (If more than one Beneficiary is named, the Beneficiaries
                      shall share equally in the rights unless otherwise stated
                      above).

                      Unless otherwise expressly provided, if any Beneficiary
                      above-designated predeceases me, any rights shall
                      pass equally to the remaining designated Beneficiar(ies)
                      if any, who survive me, but if no designated Beneficiary
                      survives me, any rights shall pass to my estate.

                      Optionee may change the Beneficiar(ies) by filing written
                      notice with the Company.

                      The designation of Beneficiary herein is subject to all
                      the terms and conditions of the Plan and all applicable
                      laws, rules and regulations. In addition, the Company may
                      require an indemnity and/or other assurances from the
                      Beneficiar(ies) prior to the exercise of any rights by
                      such Beneficiar(ies) under this option.

                      Date:
                            --------------      -------------------------------
                                                   Signature of Optionee


                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>k88686exv10w3.txt
<DESCRIPTION>NONLENDER BONUS PLAN
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.3

                        MERCANTILE BANK OF WEST MICHIGAN
                              NON-LENDER BONUS PLAN

The Mercantile Bonus Plan is designed to reflect the fact that the directors and
management of Mercantile Bank of West Michigan and Mercantile Bank Corporation
believe that the company's shareholders are willing to share financially in
operation results that are superior to those forecast by the company and
approved by the Board of Directors.

The purpose of the Plan is to:

     o    promote the growth, profitability and expense control necessary to
          accomplish corporate strategic long term plans

     o    encourage superior results by providing a meaningful incentive

     o    support the Mercantile Teamwork

ELIGIBILITY

All non-lenders and non-commissioned employees are included in the Plan. The
employee must be an active employee on the day that the bonus awards are
distributed. An employee that is out on medical leave at the time the awards are
distributed will be eligible to receive a bonus. An employee that is suspended
with or without pay at the time the awards are distributed will not be eligible
to receive the bonus award. If an employee terminates his or her association
with Mercantile Bank of West Michigan, any accrued but unpaid bonus award is
cancelled.

PERFORMANCE GOALS

The bonus payout is determined by the overall performance of the Bank. The total
payout is calculated by comparing current year after tax net operating income
(NOI), inclusive of pre-tax bonus accrual expense, with the prior year NOI. If
current year NOI is not greater than 120% of the prior year NOI, the pre-tax
bonus accrual will be adjusted downward until current year NOI, inclusive of
pre-tax bonus accrual expense, exceeds 120% of prior year NOI.

The maximum bonus payout for each employee is calculated as a percentage of
salary with the percentage applied to each salary based on the employee's job
title within the organization. The maximum bonus pool is the sum of each
employee's maximum bonus payout, and once this maximum pool is achieved, no
additional bonus expense will be accrued. The Board of Directors annually
approves the percentages that are applied to employee salaries.


<PAGE>



                              2005 BONUS STRUCTURE
                           EMPLOYEE BONUS - NON-LENDER


<Table>
<S>                                                   <C>
NON-EXEMPT/EXEMPT                                     10%

OFFICER                                               15%

ASSISTANT VICE PRESIDENT                              25%

VICE PRESIDENT                                        30%

SENIOR VICE PRESIDENT                                 40%

COO/CFO                                               45%

CHAIRMAN, PRESIDENT                                   50%
</Table>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>5
<FILENAME>k88686exv11.txt
<DESCRIPTION>STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TEXT>
<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                      EXHIBIT 11

                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS


RETURN ON EQUITY AND ASSETS

<Table>
<Caption>
                                                               JANUARY 1, 2004
                                                                     TO
                                              ANNUALIZED     SEPTEMBER 30, 2004
                                              ----------     ------------------
<S>                                           <C>            <C>
Return on average total assets                   0.92%                0.69%
Return on average equity                         9.23%                6.91%
Dividend payout ratio                                                20.61%
Average equity to average assets                                      9.99%


STATEMENT OF COMPUTED PER SHARE EARNINGS

Net income                                                      $9,233,000

Average basic shares outstanding                                 7,169,198

Average diluted shares outstanding                               7,316,510

Basic earnings per share                                        $     1.29

Diluted earnings per share                                      $     1.26
</Table>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>6
<FILENAME>k88686exv31.txt
<DESCRIPTION>SECTION 302 CERTIFICATIONS OF CEO AND CFO
<TEXT>
<PAGE>
                                                                    EXHIBIT 31

                          RULE 13a-14(a) CERTIFICATIONS

I, Gerald R. Johnson, Jr., Chairman and Chief Executive Officer of Mercantile
Bank Corporation, certify that:

1. I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the
"registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: November 5, 2004                      /s/ Gerald R. Johnson, Jr.
                                            ------------------------------------
                                            Gerald R. Johnson, Jr.
                                            Chairman and Chief Executive Officer

<PAGE>


                          RULE 13a-14(a) CERTIFICATIONS


I, Charles E. Christmas, Senior Vice President, Chief Financial Officer and
Treasurer of Mercantile Bank Corporation, certify that:

1. I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the
"registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: November 5, 2004            /s/ Charles E. Christmas
                                  ----------------------------------------------
                                  Charles E. Christmas.
                                  Senior Vice President, Chief Financial Officer
                                  and Treasurer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>7
<FILENAME>k88686exv32w1.txt
<DESCRIPTION>SECTION 1350 CHIEF EXECUTIVE OFFICER CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         This certification is provided pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the
quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the
"Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

         I, Gerald R. Johnson, Jr., Chairman and Chief Executive Officer of the
Issuer, certify that:

(i) the Form 10-Q fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and

(ii) the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.

Dated: November 5, 2004

                                            /s/ Gerald R. Johnson, Jr.
                                            ------------------------------------
                                            Gerald R. Johnson, Jr.
                                            Chairman and Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>8
<FILENAME>k88686exv32w2.txt
<DESCRIPTION>SECTION 1350 CHIEF FINANCIAL OFFICER CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         This certification is provided pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the
quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the
"Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

         I, Charles E. Christmas, Senior Vice President, Chief Financial Officer
and Treasurer of the Issuer, certify that:

(i) the Form 10-Q fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and

(ii) the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.

Dated: November 5, 2004

                                                 /s/ Charles E. Christmas
                                                 -------------------------------
                                                 Charles E. Christmas
                                                 Senior Vice President, Chief
                                                 Financial Officer and Treasurer


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
