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Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 000-26719

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

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

310 Leonard Street, NW, Grand Rapids, MI 49504

(Address of principal executive offices) (Zip Code)

(616) 406-3000

(Registrant’s telephone number, including area code)

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

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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

Yes ☐ No ☐

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

Yes ☐ No ☒

At July 28, 2025, there were 16,248,613 shares of common stock outstanding.

Table of Contents

MERCANTILE BANK CORPORATION

INDEX

PART I. | Financial Information | Page No.
| Item 1. Financial Statements |
| Consolidated Balance Sheets – June 30, 2025 (Unaudited) and December 31, 2024 | 1
| Consolidated Statements of Income (Unaudited) - Three and Six Months Ended June 30, 2025 and June 30, 2024 | 2
| Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and Six Months Ended June 30, 2025 and June 30, 2024 | 3
| Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and Six Months Ended June 30, 2025 and June 30, 2024 | 4
| Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, 2025 and June 30, 2024 | 8
| Notes to Consolidated Financial Statements (Unaudited) | 10
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 46
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 62
| Item 4. Controls and Procedures | 64
PART II. | Other Information |
| Item 1. Legal Proceedings | 65
| Item 1A. Risk Factors | 65
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 67
| Item 3. Defaults Upon Senior Securities | 67
| Item 4. Mine Safety Disclosures | 67
| Item 5. Other Information | 67
| Item 6. Exhibits | 68
| Signatures | 69

Table of Contents

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

|  | (Unaudited) |  |  |  |  |
|  | June 30, |  |  | December 31, |
(Dollars in thousands) |  | 2025 |  |  | 2024 |
ASSETS |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 98,900 |  |  | $ | 56,991 |
Interest-earning assets |  |  | 197,172 |  |  |  | 336,019 |
Total cash and cash equivalents |  |  | 296,072 |  |  |  | 393,010 |
Securities available for sale |  |  | 826,415 |  |  |  | 730,352 |
Federal Home Loan Bank stock |  |  | 21,513 |  |  |  | 21,513 |
Mortgage loans held for sale |  |  | 27,569 |  |  |  | 15,824 |
Loans |  |  | 4,698,019 |  |  |  | 4,600,781 |
Allowance for credit losses |  |  | (58,375 | ) |  |  | (54,454 | )
Loans, net |  |  | 4,639,644 |  |  |  | 4,546,327 |
Premises and equipment, net |  |  | 54,792 |  |  |  | 53,427 |
Bank owned life insurance |  |  | 95,012 |  |  |  | 93,839 |
Goodwill |  |  | 49,473 |  |  |  | 49,473 |
Other assets |  |  | 170,498 |  |  |  | 148,396 |
Total assets |  | $ | 6,180,988 |  |  | $ | 6,052,161 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 1,180,801 |  |  | $ | 1,264,523 |
Interest-bearing |  |  | 3,529,671 |  |  |  | 3,433,843 |
Total deposits |  |  | 4,710,472 |  |  |  | 4,698,366 |
Securities sold under agreements to repurchase |  |  | 242,785 |  |  |  | 121,521 |
Federal Home Loan Bank advances |  |  | 356,221 |  |  |  | 387,083 |
Subordinated debentures |  |  | 50,672 |  |  |  | 50,330 |
Subordinated notes |  |  | 89,486 |  |  |  | 89,314 |
Accrued interest and other liabilities |  |  | 99,833 |  |  |  | 121,021 |
Total liabilities |  |  | 5,549,469 |  |  |  | 5,467,635 |
Commitments and contingent liabilities (Note 9) |  |  |  |  |  |  |  |
Shareholders' equity |  |  |  |  |  |  |  |
Preferred stock, no par value; 1,000,000 shares authorized; none issued |  |  | 0 |  |  |  | 0 |
Common stock, no par value; 40,000,000 shares authorized; 16,248,694 shares issued and outstanding at June 30, 2025 and 16,146,374 shares issued and outstanding at December 31, 2024 |  |  | 302,294 |  |  |  | 299,705 |
Retained earnings |  |  | 364,991 |  |  |  | 334,646 |
Accumulated other comprehensive income (loss) |  |  | (35,766 | ) |  |  | (49,825 | )
Total shareholders’ equity |  |  | 631,519 |  |  |  | 584,526 |
Total liabilities and shareholders’ equity |  | $ | 6,180,988 |  |  | $ | 6,052,161 |

See accompanying notes to consolidated financial statements.

1

Table of Contents

MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

|  | Three Months |  |  | Three Months |  |  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |  |  | Ended |  |  | Ended |
(Dollars in thousands except per share amounts) |  | June 30, 2025 |  |  | June 30, 2024 |  |  | June 30, 2025 |  |  | June 30, 2024 |
Interest income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 73,962 |  |  | $ | 72,819 |  |  | $ | 145,954 |  |  | $ | 144,089 |
Securities, taxable |  |  | 4,679 |  |  |  | 2,656 |  |  |  | 8,919 |  |  |  | 5,101 |
Securities, tax-exempt |  |  | 1,181 |  |  |  | 968 |  |  |  | 2,353 |  |  |  | 1,945 |
Interest-earning assets |  |  | 2,136 |  |  |  | 2,436 |  |  |  | 5,071 |  |  |  | 4,469 |
Total interest income |  |  | 81,958 |  |  |  | 78,879 |  |  |  | 162,297 |  |  |  | 155,604 |
Interest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 25,725 |  |  |  | 24,710 |  |  |  | 50,918 |  |  |  | 46,934 |
Short-term borrowings |  |  | 1,919 |  |  |  | 1,757 |  |  |  | 3,682 |  |  |  | 3,412 |
Federal Home Loan Bank advances |  |  | 2,897 |  |  |  | 3,252 |  |  |  | 5,795 |  |  |  | 6,651 |
Subordinated debt and other borrowings |  |  | 1,938 |  |  |  | 2,088 |  |  |  | 3,875 |  |  |  | 4,173 |
Total interest expense |  |  | 32,479 |  |  |  | 31,807 |  |  |  | 64,270 |  |  |  | 61,170 |
Net interest income |  |  | 49,479 |  |  |  | 47,072 |  |  |  | 98,027 |  |  |  | 94,434 |
Provision for credit losses |  |  | 1,600 |  |  |  | 3,500 |  |  |  | 3,700 |  |  |  | 4,800 |
Net interest income after provision for credit losses |  |  | 47,879 |  |  |  | 43,572 |  |  |  | 94,327 |  |  |  | 89,634 |
Noninterest income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit and sweep accounts |  |  | 1,967 |  |  |  | 1,692 |  |  |  | 3,806 |  |  |  | 3,224 |
Mortgage banking income |  |  | 3,969 |  |  |  | 3,023 |  |  |  | 6,620 |  |  |  | 5,365 |
Credit and debit card income |  |  | 2,350 |  |  |  | 2,266 |  |  |  | 4,551 |  |  |  | 4,387 |
Interest rate swap fees |  |  | 1,230 |  |  |  | 766 |  |  |  | 1,310 |  |  |  | 2,104 |
Payroll services income |  |  | 783 |  |  |  | 686 |  |  |  | 1,823 |  |  |  | 1,582 |
Earnings on bank owned life insurance |  |  | 561 |  |  |  | 437 |  |  |  | 1,104 |  |  |  | 1,609 |
Other income |  |  | 602 |  |  |  | 811 |  |  |  | 950 |  |  |  | 2,277 |
Total noninterest income |  |  | 11,462 |  |  |  | 9,681 |  |  |  | 20,164 |  |  |  | 20,548 |
Noninterest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and benefits |  |  | 20,711 |  |  |  | 17,913 |  |  |  | 40,268 |  |  |  | 36,150 |
Occupancy |  |  | 2,155 |  |  |  | 2,220 |  |  |  | 4,273 |  |  |  | 4,509 |
Furniture and equipment depreciation, rent and maintenance |  |  | 826 |  |  |  | 923 |  |  |  | 1,613 |  |  |  | 1,852 |
Data processing costs |  |  | 3,599 |  |  |  | 3,415 |  |  |  | 7,369 |  |  |  | 6,704 |
Charitable foundation contributions |  |  | 2 |  |  |  | 4 |  |  |  | 5 |  |  |  | 707 |
Other expense |  |  | 6,086 |  |  |  | 5,262 |  |  |  | 10,955 |  |  |  | 9,758 |
Total noninterest expense |  |  | 33,379 |  |  |  | 29,737 |  |  |  | 64,483 |  |  |  | 59,680 |
Income before federal income tax expense |  |  | 25,962 |  |  |  | 23,516 |  |  |  | 50,008 |  |  |  | 50,502 |
Federal income tax expense |  |  | 3,344 |  |  |  | 4,730 |  |  |  | 7,853 |  |  |  | 10,154 |
Net income |  | $ | 22,618 |  |  | $ | 18,786 |  |  | $ | 42,155 |  |  | $ | 40,348 |
Basic earnings per share |  | $ | 1.39 |  |  | $ | 1.17 |  |  | $ | 2.60 |  |  | $ | 2.50 |
Diluted earnings per share |  | $ | 1.39 |  |  | $ | 1.17 |  |  | $ | 2.60 |  |  | $ | 2.50 |
Average basic shares outstanding |  |  | 16,239,919 |  |  |  | 16,122,813 |  |  |  | 16,219,064 |  |  |  | 16,120,836 |
Average diluted shares outstanding |  |  | 16,239,919 |  |  |  | 16,122,813 |  |  |  | 16,219,064 |  |  |  | 16,120,836 |

See accompanying notes to consolidated financial statements.

2

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

|  | Three Months |  |  | Three Months |  |  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |  |  | Ended |  |  | Ended |
(Dollars in thousands) |  | June 30, 2025 |  |  | June 30, 2024 |  |  | June 30, 2025 |  |  | June 30, 2024 |
Net income |  | $ | 22,618 |  |  | $ | 18,786 |  |  | $ | 42,155 |  |  | $ | 40,348 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities available for sale |  |  | 6,204 |  |  |  | (342 | ) |  |  | 17,797 |  |  |  | (3,491 | )
Tax effect of unrealized holding gains (losses) on securities available for sale |  |  | (1,303 | ) |  |  | 73 |  |  |  | (3,738 | ) |  |  | 734 |
Other comprehensive income (loss), net of tax |  |  | 4,901 |  |  |  | (269 | ) |  |  | 14,059 |  |  |  | (2,757 | )
Comprehensive income (loss) |  | $ | 27,519 |  |  | $ | 18,517 |  |  | $ | 56,214 |  |  | $ | 37,591 |

See accompanying notes to consolidated financial statements.

3

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other |  |  | Total |
|  | Preferred |  |  | Common |  |  | Retained |  |  | Comprehensive |  |  | Shareholders’ |
(Dollars in thousands except per share amounts) |  | Stock |  |  | Stock |  |  | Earnings |  |  | Income (Loss) |  |  | Equity |
Balances, April 1, 2025 |  | $ | 0 |  |  | $ | 300,732 |  |  | $ | 348,281 |  |  | $ | (40,667 | ) |  | $ | 608,346 |
Employee stock purchase plan (322 shares) |  |  |  |  |  |  | 15 |  |  |  |  |  |  |  |  |  |  |  | 15 |
Dividend reinvestment plan (4,687 shares) |  |  |  |  |  |  | 202 |  |  |  |  |  |  |  |  |  |  |  | 202 |
Stock grants to directors for retainer fees (9,210 shares) |  |  |  |  |  |  | 408 |  |  |  |  |  |  |  |  |  |  |  | 408 |
Stock-based compensation expense |  |  |  |  |  |  | 937 |  |  |  |  |  |  |  |  |  |  |  | 937 |
Cash dividends ($0.37 per common share) |  |  |  |  |  |  |  |  |  |  | (5,908 | ) |  |  |  |  |  |  | (5,908 | )
Net income for the three months ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  | 22,618 |  |  |  |  |  |  |  | 22,618 |
Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,901 |  |  |  | 4,901 |
Balances, June 30, 2025 |  | $ | 0 |  |  | $ | 302,294 |  |  | $ | 364,991 |  |  | $ | (35,766 | ) |  | $ | 631,519 |

See accompanying notes to consolidated financial statements.

4

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other |  |  | Total |
|  | Preferred |  |  | Common |  |  | Retained |  |  | Comprehensive |  |  | Shareholders’ |
(Dollars in thousands except per share amounts) |  | Stock |  |  | Stock |  |  | Earnings |  |  | Income (Loss) |  |  | Equity |
Balances, January 1, 2025 |  | $ | 0 |  |  | $ | 299,705 |  |  | $ | 334,646 |  |  | $ | (49,825 | ) |  | $ | 584,526 |
Employee stock purchase plan (598 shares) |  |  |  |  |  |  | 27 |  |  |  |  |  |  |  |  |  |  |  | 27 |
Dividend reinvestment plan (9,257 shares) |  |  |  |  |  |  | 405 |  |  |  |  |  |  |  |  |  |  |  | 405 |
Stock grants to directors for retainer fees (9,810 shares) |  |  |  |  |  |  | 434 |  |  |  |  |  |  |  |  |  |  |  | 434 |
Stock-based compensation expense |  |  |  |  |  |  | 1,723 |  |  |  |  |  |  |  |  |  |  |  | 1,723 |
Cash dividends ($0.74 per common share) |  |  |  |  |  |  |  |  |  |  | (11,810 | ) |  |  |  |  |  |  | (11,810 | )
Net income for the six months ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  | 42,155 |  |  |  |  |  |  |  | 42,155 |
Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 14,059 |  |  |  | 14,059 |
Balances, June 30, 2025 |  | $ | 0 |  |  | $ | 302,294 |  |  | $ | 364,991 |  |  | $ | (35,766 | ) |  | $ | 631,519 |

See accompanying notes to consolidated financial statements.

5

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other |  |  | Total |
|  | Preferred |  |  | Common |  |  | Retained |  |  | Comprehensive |  |  | Shareholders’ |
(Dollars in thousands except per share amounts) |  | Stock |  |  | Stock |  |  | Earnings |  |  | Income (Loss) |  |  | Equity |
Balances, April 1, 2024 |  | $ | 0 |  |  | $ | 296,065 |  |  | $ | 293,554 |  |  | $ | (52,975 | ) |  | $ | 536,644 |
Employee stock purchase plan (320 shares) |  |  |  |  |  |  | 13 |  |  |  |  |  |  |  |  |  |  |  | 13 |
Dividend reinvestment plan (5,423 shares) |  |  |  |  |  |  | 201 |  |  |  |  |  |  |  |  |  |  |  | 201 |
Stock grants to directors for retainer fees (11,247 shares) |  |  |  |  |  |  | 421 |  |  |  |  |  |  |  |  |  |  |  | 421 |
Stock-based compensation expense |  |  |  |  |  |  | 891 |  |  |  |  |  |  |  |  |  |  |  | 891 |
Cash dividends ($0.35 per common share) |  |  |  |  |  |  |  |  |  |  | (5,536 | ) |  |  |  |  |  |  | (5,536 | )
Net income for the three months ended June 30, 2024 |  |  |  |  |  |  |  |  |  |  | 18,786 |  |  |  |  |  |  |  | 18,786 |
Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (269 | ) |  |  | (269 | )
Balances, June 30, 2024 |  | $ | 0 |  |  | $ | 297,591 |  |  | $ | 306,804 |  |  | $ | (53,244 | ) |  | $ | 551,151 |

See accompanying notes to consolidated financial statements.

6

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other |  |  | Total |
|  | Preferred |  |  | Common |  |  | Retained |  |  | Comprehensive |  |  | Shareholders’ |
(Dollars in thousands except per share amounts) |  | Stock |  |  | Stock |  |  | Earnings |  |  | Income (Loss) |  |  | Equity |
Balances, January 1, 2024 |  | $ | 0 |  |  | $ | 295,106 |  |  | $ | 277,526 |  |  | $ | (50,487 | ) |  | $ | 522,145 |
Employee stock purchase plan (610 shares) |  |  |  |  |  |  | 24 |  |  |  |  |  |  |  |  |  |  |  | 24 |
Dividend reinvestment plan (10,990 shares) |  |  |  |  |  |  | 405 |  |  |  |  |  |  |  |  |  |  |  | 405 |
Stock grants to directors for retainer fees (11,316 shares) |  |  |  |  |  |  | 423 |  |  |  |  |  |  |  |  |  |  |  | 423 |
Stock-based compensation expense |  |  |  |  |  |  | 1,633 |  |  |  |  |  |  |  |  |  |  |  | 1,633 |
Cash dividends ($0.70 per common share) |  |  |  |  |  |  |  |  |  |  | (11,070 | ) |  |  |  |  |  |  | (11,070 | )
Net income for the six months ended June 30, 2024 |  |  |  |  |  |  |  |  |  |  | 40,348 |  |  |  |  |  |  |  | 40,348 |
Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (2,757 | ) |  |  | (2,757 | )
Balances, June 30, 2024 |  | $ | 0 |  |  | $ | 297,591 |  |  | $ | 306,804 |  |  | $ | (53,244 | ) |  | $ | 551,151 |

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |
(Dollars in thousands) |  | June 30, 2025 |  |  | June 30, 2024 |
Cash flows from operating activities |  |  |  |  |  |  |  |
Net income |  | $ | 42,155 |  |  | $ | 40,348 |
Adjustments to reconcile net income to net cash from operating activities |  |  |  |  |  |  |  |
Depreciation and amortization/accretion |  |  | 3,064 |  |  |  | 5,480 |
Provision for credit losses |  |  | 3,700 |  |  |  | 4,800 |
Stock-based compensation expense |  |  | 1,723 |  |  |  | 1,633 |
Stock grants to directors for retainer fees |  |  | 434 |  |  |  | 423 |
Proceeds from sales of mortgage loans held for sale |  |  | 190,367 |  |  |  | 147,849 |
Origination of mortgage loans held for sale |  |  | (196,413 | ) |  |  | (146,731 | )
Net gain from sales of mortgage loans held for sale |  |  | (5,699 | ) |  |  | (4,637 | )
Net gain from sales and valuation write-downs of foreclosed assets |  |  | 0 |  |  |  | (290 | )
Net gain from sale and write-down of former bank premises |  |  | 0 |  |  |  | (78 | )
Earnings on bank owned life insurance |  |  | (1,104 | ) |  |  | (1,609 | )
Net (gain) loss on instruments designated at fair value and related derivatives |  |  | 210 |  |  |  | (104 | )
Net change in: |  |  |  |  |  |  |  |
Accrued interest receivable |  |  | (278 | ) |  |  | (1,169 | )
Other assets |  |  | (28,260 | ) |  |  | (16,679 | )
Accrued interest payable and other liabilities |  |  | (20,680 | ) |  |  | 20,113 |
Net cash from (for) operating activities |  |  | (10,781 | ) |  |  | 49,349 |
Cash flows from investing activities |  |  |  |  |  |  |  |
Loan originations and payments, net |  |  | (97,017 | ) |  |  | (133,793 | )
Purchases of securities available for sale |  |  | (104,552 | ) |  |  | (57,592 | )
Proceeds from maturities, calls and repayments of securities available for sale |  |  | 28,180 |  |  |  | 23,185 |
Proceeds from sales of foreclosed assets |  |  | 0 |  |  |  | 290 |
Proceeds from sales of fomer bank premises |  |  | 0 |  |  |  | 278 |
Proceeds from bank owned life insurance claims |  |  | 0 |  |  |  | 1,357 |
Net purchases of premises and equipment and lease activity |  |  | (3,898 | ) |  |  | (2,330 | )
Net cash for investing activities |  |  | (177,287 | ) |  |  | (168,605 | )

See accompanying notes to consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

|  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |
(Dollars in thousands) |  | June 30, 2025 |  |  | June 30, 2024 |
Cash flows from financing activities |  |  |  |  |  |  |  |
Net increase in time deposits |  |  | 51,158 |  |  |  | 71,902 |
Net increase (decrease) in all other deposits |  |  | (39,052 | ) |  |  | 173,754 |
Net increase (decrease) in securities sold under agreements to repurchase |  |  | 121,264 |  |  |  | (7,836 | )
Payoffs and paydowns of Federal Home Loan Bank advances |  |  | (50,862 | ) |  |  | (50,827 | )
Proceeds from Federal Home Loan Bank advances |  |  | 20,000 |  |  |  | 10,000 |
Employee stock purchase plan |  |  | 27 |  |  |  | 24 |
Dividend reinvestment plan |  |  | 405 |  |  |  | 405 |
Payment of cash dividends to common shareholders |  |  | (11,810 | ) |  |  | (11,070 | )
Net cash from financing activities |  |  | 91,130 |  |  |  | 186,352 |
Net change in cash and cash equivalents |  |  | (96,938 | ) |  |  | 67,096 |
Cash and cash equivalents at beginning of period |  |  | 393,010 |  |  |  | 130,533 |
Cash and cash equivalents at end of period |  | $ | 296,072 |  |  | $ | 197,629 |
Supplemental disclosures of cash flows information |  |  |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 64,263 |  |  | $ | 59,477 |
Federal income tax |  |  | 0 |  |  |  | 11,600 |

See accompanying notes to consolidated financial statements.

9

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Approximately 277,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2025. Approximately 303,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2024.

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

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

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

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Net unamortized deferred loan costs amounted to $1.8 million and $2.2 million at June 30, 2025, and December 31, 2024, respectively.

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

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

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of June 30, 2025 and December 31, 2024, we determined that the fair value of our mortgage loans held for sale totaled $28.1 million and $16.0 million, respectively.

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

Our qualitative factors include:

o Changes in lending policies and procedures

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

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

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

o Changes in the quality of the loan review program

o Changes in the value of underlying collateral dependent loans

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

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

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

We recorded a provision for credit losses of $3.7 million and $4.8 million during the six months ended June 30, 2025 and 2024, respectively. The provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. The provision expense recorded during the first six months of 2024 primarily reflected a net increase in individual allocations and allocations required by net loan growth.

Accrued interest receivable on loans totaling $17.2 million and $17.3 million as of June 30, 2025 and December 31, 2024, respectively, is included in other assets on the Consolidated Balance Sheets. We elected not to measure an allowance for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when loans become 90 days past due, or earlier if we believe the collection of interest is doubtful. We believe this policy results in the timely reversal of uncollectable interest. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. In some cases, we may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed and collateral deficiencies, among other things.

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

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Mortgage Banking Activities: Mortgage loans serviced for others totaled $1.59 billion and $1.55 billion as of June 30, 2025 and December 31, 2024, respectively. Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold and totaled $12.8 million and $12.5 million as of June 30, 2025 and December 31, 2024, respectively. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance. The fair value of mortgage servicing rights totaled $21.6 million and $21.0 million as of June 30, 2025 and December 31, 2024, respectively.

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

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

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

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

(Continued)

15

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

|  | Three Months |  |  | Three Months |  |  | Six Months |  |  | Six Months |
|  | Ended |  |  | Ended |  |  | Ended |  |  | Ended |
(Dollars in thousands) |  | June 30, 2025 |  |  | June 30, 2024 |  |  | June 30, 2025 |  |  | June 30, 2024 |
Service charges on deposit and sweep accounts |  | $ | 1,967 |  |  | $ | 1,692 |  |  | $ | 3,806 |  |  | $ | 3,224 |
Credit and debit card income |  |  | 2,350 |  |  |  | 2,266 |  |  |  | 4,551 |  |  |  | 4,387 |
Interest rate swap fees |  |  | 1,230 |  |  |  | 766 |  |  |  | 1,310 |  |  |  | 2,104 |
Payroll services income |  |  | 783 |  |  |  | 686 |  |  |  | 1,823 |  |  |  | 1,582 |
Customer service fees |  |  | 179 |  |  |  | 183 |  |  |  | 376 |  |  |  | 381 |

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

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

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

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

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

(Continued)

16

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. SECURITIES

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

|  |  |  |  |  | Gross |  |  | Gross |  |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
(Dollars in thousands) |  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 618,717 |  |  | $ | 2,273 |  |  | $ | (33,319 | ) |  | $ | 587,671 |
Mortgage-backed securities |  |  | 29,893 |  |  |  | 10 |  |  |  | (5,523 | ) |  |  | 24,380 |
Municipal general obligation bonds |  |  | 188,931 |  |  |  | 548 |  |  |  | (7,361 | ) |  |  | 182,118 |
Municipal revenue bonds |  |  | 33,646 |  |  |  | 129 |  |  |  | (2,029 | ) |  |  | 31,746 |
Other investments |  |  | 500 |  |  |  | 0 |  |  |  | 0 |  |  |  | 500 |
|  | $ | 871,687 |  |  | $ | 2,960 |  |  | $ | (48,232 | ) |  | $ | 826,415 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 542,676 |  |  | $ | 131 |  |  | $ | (47,226 | ) |  | $ | 495,581 |
Mortgage-backed securities |  |  | 31,696 |  |  |  | 4 |  |  |  | (6,332 | ) |  |  | 25,368 |
Municipal general obligation bonds |  |  | 187,484 |  |  |  | 513 |  |  |  | (7,827 | ) |  |  | 180,170 |
Municipal revenue bonds |  |  | 31,066 |  |  |  | 89 |  |  |  | (2,422 | ) |  |  | 28,733 |
Other investments |  |  | 500 |  |  |  | 0 |  |  |  | 0 |  |  |  | 500 |
|  | $ | 793,422 |  |  | $ | 737 |  |  | $ | (63,807 | ) |  | $ | 730,352 |

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

|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
(Dollars in thousands) |  | Value |  |  | Loss |  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 49,087 |  |  | $ | 454 |  |  | $ | 359,282 |  |  | $ | 32,865 |  |  | $ | 408,369 |  |  | $ | 33,319 |
Mortgage-backed securities |  |  | 0 |  |  |  | 0 |  |  |  | 23,848 |  |  |  | 5,523 |  |  |  | 23,848 |  |  |  | 5,523 |
Municipal general obligation bonds |  |  | 38,247 |  |  |  | 1,449 |  |  |  | 108,089 |  |  |  | 5,912 |  |  |  | 146,336 |  |  |  | 7,361 |
Municipal revenue bonds |  |  | 2,985 |  |  |  | 41 |  |  |  | 22,586 |  |  |  | 1,988 |  |  |  | 25,571 |  |  |  | 2,029 |
Other investments |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
|  | $ | 90,319 |  |  | $ | 1,944 |  |  | $ | 513,805 |  |  | $ | 46,288 |  |  | $ | 604,124 |  |  | $ | 48,232 |

(Continued)

17

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. SECURITIES (Continued)

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

|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
(Dollars in thousands) |  | Value |  |  | Loss |  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 113,942 |  |  | $ | 2,379 |  |  | $ | 361,171 |  |  | $ | 44,847 |  |  | $ | 475,113 |  |  | $ | 47,226 |
Mortgage-backed securities |  |  | 194 |  |  |  | 1 |  |  |  | 24,865 |  |  |  | 6,331 |  |  |  | 25,059 |  |  |  | 6,332 |
Municipal general obligation bonds |  |  | 63,387 |  |  |  | 1,117 |  |  |  | 92,153 |  |  |  | 6,710 |  |  |  | 155,540 |  |  |  | 7,827 |
Municipal revenue bonds |  |  | 2,840 |  |  |  | 28 |  |  |  | 21,865 |  |  |  | 2,394 |  |  |  | 24,705 |  |  |  | 2,422 |
Other investments |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
|  | $ | 180,363 |  |  | $ | 3,525 |  |  | $ | 500,054 |  |  | $ | 60,282 |  |  | $ | 680,417 |  |  | $ | 63,807 |

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

At June 30, 2025, 747 debt securities with estimated fair values totaling $604 million had unrealized losses aggregating $48.2 million. At December 31, 2024, 843 debt securities with estimated fair values totaling $680 million had unrealized losses aggregating $63.8 million. At June 30, 2025, unrealized losses aggregating $38.8 million were attributable to bonds issued or guaranteed by agencies of the U.S. Federal Government, while unrealized losses totaling $9.4 million were associated with bonds issued by state-based municipalities. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security’s amortized cost basis is written down to fair value through income with the establishment of an allowance. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors.

(Continued)

18

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. SECURITIES (Continued)

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

|  | Amortized |  |  | Fair |
(Dollars in thousands) |  | Cost |  |  | Value |
Due in 2025 |  | $ | 33,462 |  |  | $ | 33,137 |
Due in 2026 through 2030 |  |  | 480,202 |  |  |  | 460,372 |
Due in 2031 through 2035 |  |  | 277,229 |  |  |  | 259,053 |
Due in 2036 and beyond |  |  | 50,401 |  |  |  | 48,973 |
Mortgage-backed securities |  |  | 29,893 |  |  |  | 24,380 |
Other investments |  |  | 500 |  |  |  | 500 |
Total available for sale securities |  | $ | 871,687 |  |  | $ | 826,415 |

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

Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $223 million and $219 million as of June 30, 2025, and December 31, 2024, respectively, with estimated market values of $214 million and $209 million at the respective dates. We had no securities issued by all other states and their political subdivisions as of June 30, 2025, and December 31, 2024. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligation securities that are pledged to secure repurchase agreements was $243 million and $122 million at June 30, 2025, and December 31, 2024, respectively. The carrying value of U.S. Government agency debt obligation securities that are pledged to secure specific customer deposits was $12.3 million and $11.7 million at June 30, 2025, and December 31, 2024, respectively.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

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

| o | Commercial Loans

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

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

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

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

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

| o | Retail Loans

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

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

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Our total loans at June 30, 2025 were $4.70 billion compared to $4.60 billion at December 31, 2024, an increase of $97.2 million, or 2.1%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2025 and December 31, 2024, and the percentage change in loans from the end of 2024 to the end of the second quarter of 2025, are as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Percent |
|  | June 30, 2025 |  |  | December 31, 2024 |  |  | Increase |
(Dollars in thousands) |  | Balance |  |  | % |  |  | Balance |  |  | % |  |  | (Decrease) |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 1,375,368 |  |  |  | 29.3 | % |  | $ | 1,287,308 |  |  |  | 28.0 | % |  |  | 6.8 | %
Vacant land, land development, and residential construction |  |  | 67,520 |  |  |  | 1.4 |  |  |  | 66,936 |  |  |  | 1.5 |  |  |  | 0.9 |
Real estate – owner occupied |  |  | 725,106 |  |  |  | 15.4 |  |  |  | 748,837 |  |  |  | 16.3 |  |  |  | (3.2 | )
Real estate – non-owner occupied |  |  | 1,134,012 |  |  |  | 24.1 |  |  |  | 1,128,404 |  |  |  | 24.5 |  |  |  | 0.5 |
Real estate – multi-family and residential rental |  |  | 519,152 |  |  |  | 11.1 |  |  |  | 475,819 |  |  |  | 10.3 |  |  |  | 9.1 |
Total commercial |  |  | 3,821,158 |  |  |  | 81.3 |  |  |  | 3,707,304 |  |  |  | 80.6 |  |  |  | 3.1 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 799,427 |  |  |  | 17.0 |  |  |  | 827,597 |  |  |  | 18.0 |  |  |  | (3.4 | )
Other consumer loans |  |  | 77,434 |  |  |  | 1.7 |  |  |  | 65,880 |  |  |  | 1.4 |  |  |  | 17.5 |
Total retail |  |  | 876,861 |  |  |  | 18.7 |  |  |  | 893,477 |  |  |  | 19.4 |  |  |  | (1.9 | )
Total loans |  | $ | 4,698,019 |  |  |  | 100.0 | % |  | $ | 4,600,781 |  |  |  | 100.0 | % |  |  | 2.1 | %

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Recorded |
|  |  |  |  |  |  |  |  |  | Greater |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Balance |
|  | 30 – 59 |  |  | 60 – 89 |  |  | Than 89 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | > 89 |
|  | Days |  |  | Days |  |  | Days |  |  | Total |  |  |  |  |  |  | Total |  |  | Days and |
(Dollars in thousands) |  | Past Due |  |  | Past Due |  |  | Past Due |  |  | Past Due |  |  | Current |  |  | Loans |  |  | Accruing |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 0 |  |  | $ | 1,305 |  |  | $ | 400 |  |  | $ | 1,705 |  |  | $ | 1,373,663 |  |  | $ | 1,375,368 |  |  | $ | 0 |
Vacant land, land development, and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 67,520 |  |  |  | 67,520 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 725,106 |  |  |  | 725,106 |  |  |  | 0 |
Real estate – non- owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 1,134,012 |  |  |  | 1,134,012 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 519,152 |  |  |  | 519,152 |  |  |  | 0 |
Total commercial |  |  | 0 |  |  |  | 1,305 |  |  |  | 400 |  |  |  | 1,705 |  |  |  | 3,819,453 |  |  |  | 3,821,158 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 654 |  |  |  | 208 |  |  |  | 0 |  |  |  | 862 |  |  |  | 798,565 |  |  |  | 799,427 |  |  |  | 0 |
Other consumer loans |  |  | 103 |  |  |  | 0 |  |  |  | 0 |  |  |  | 103 |  |  |  | 77,331 |  |  |  | 77,434 |  |  |  | 0 |
Total retail |  |  | 757 |  |  |  | 208 |  |  |  | 0 |  |  |  | 965 |  |  |  | 875,896 |  |  |  | 876,861 |  |  |  | 0 |
Total past due loans |  | $ | 757 |  |  | $ | 1,513 |  |  | $ | 400 |  |  | $ | 2,670 |  |  | $ | 4,695,349 |  |  | $ | 4,698,019 |  |  | $ | 0 |

(Continued)

22

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Recorded |
|  |  |  |  |  |  |  |  |  | Greater |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Balance |
|  | 30 – 59 |  |  | 60 – 89 |  |  | Than 89 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | > 89 |
|  | Days |  |  | Days |  |  | Days |  |  | Total |  |  |  |  |  |  | Total |  |  | Days and |
(Dollars in thousands) |  | Past Due |  |  | Past Due |  |  | Past Due |  |  | Past Due |  |  | Current |  |  | Loans |  |  | Accruing |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 5 |  |  | $ | 0 |  |  | $ | 864 |  |  | $ | 869 |  |  | $ | 1,286,439 |  |  | $ | 1,287,308 |  |  | $ | 0 |
Vacant land, land development, and residential construction |  |  | 12 |  |  |  | 0 |  |  |  | 0 |  |  |  | 12 |  |  |  | 66,924 |  |  |  | 66,936 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 748,837 |  |  |  | 748,837 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 1,128,404 |  |  |  | 1,128,404 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 475,819 |  |  |  | 475,819 |  |  |  | 0 |
Total commercial |  |  | 17 |  |  |  | 0 |  |  |  | 864 |  |  |  | 881 |  |  |  | 3,706,423 |  |  |  | 3,707,304 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 2,365 |  |  |  | 713 |  |  |  | 182 |  |  |  | 3,260 |  |  |  | 824,337 |  |  |  | 827,597 |  |  |  | 0 |
Other consumer loans |  |  | 112 |  |  |  | 0 |  |  |  | 0 |  |  |  | 112 |  |  |  | 65,768 |  |  |  | 65,880 |  |  |  | 0 |
Total retail |  |  | 2,477 |  |  |  | 713 |  |  |  | 182 |  |  |  | 3,372 |  |  |  | 890,105 |  |  |  | 893,477 |  |  |  | 0 |
Total past due loans |  | $ | 2,494 |  |  | $ | 713 |  |  | $ | 1,046 |  |  | $ | 4,253 |  |  | $ | 4,596,528 |  |  | $ | 4,600,781 |  |  | $ | 0 |

(Continued)

23

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  | Recorded |  |  |  |
|  | Principal |  |  | Related |
(Dollars in thousands) |  | Balance |  |  | Allowance |
With no allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 25 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 25 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 1,301 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 1,301 |  |  |  | 0 |
Total with no allowance recorded |  | $ | 1,326 |  |  | $ | 0 |
With an allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 1,702 |  |  | $ | 1,204 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 5,532 |  |  |  | 2,471 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 7,234 |  |  |  | 3,675 |
Retail: |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 1,183 |  |  |  | 219 |
Other consumer loans |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 1,183 |  |  |  | 219 |
Total with an allowance recorded |  | $ | 8,417 |  |  | $ | 3,894 |
Total nonaccrual loans: |  |  |  |  |  |  |  |
Commercial |  | $ | 7,259 |  |  | $ | 3,675 |
Retail |  |  | 2,484 |  |  |  | 219 |
Total nonaccrual loans |  | $ | 9,743 |  |  | $ | 3,894 |

Nonaccrual loans represent the entire balance of collateral dependent loans. As of June 30, 2025 and December 31, 2024, all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment. Interest income recognized on nonaccrual loans totaled $0.3 million and $0.4 million during the six months ended June 30, 2025 and 2024, respectively, reflecting the collection of interest at the time of principal pay-off.

(Continued)

24

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  | Recorded |  |  |  |
|  | Principal |  |  | Related |
(Dollars in thousands) |  | Balance |  |  | Allowance |
With no allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 615 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 42 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 657 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 1,167 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 1,167 |  |  |  | 0 |
Total with no allowance recorded |  | $ | 1,824 |  |  | $ | 0 |
With an allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 2,110 |  |  | $ | 1,732 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 2,110 |  |  |  | 1,732 |
Retail: |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 1,808 |  |  |  | 402 |
Other consumer loans |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 1,808 |  |  |  | 402 |
Total with an allowance recorded |  | $ | 3,918 |  |  | $ | 2,134 |
Total nonaccrual loans: |  |  |  |  |  |  |  |
Commercial |  | $ | 2,767 |  |  | $ | 1,732 |
Retail |  |  | 2,975 |  |  |  | 402 |
Total nonaccrual loans |  | $ | 5,742 |  |  | $ | 2,134 |

(Continued)

25

Table of Contents
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

Grade 1. | “Exceptional” Loans with this rating contain very little, if any, risk.
Grade 2. | “Outstanding” Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements.
Grade 3. | “Very Good” Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable.
Grade 4. | “Good” Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest.
Grade 5. | “Acceptable” Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are for loans for which repayment risks are satisfactory.
Grade 6. | “Monitor” Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report.
Grade 7. | “Special Mention” Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Grade 8. | “Substandard” Loans with this rate are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Grade 9. | “Doubtful” Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable.
Grade 10. | “Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted.

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

(Continued)

26

Table of Contents
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Revolving |  |  | Grand |
(Dollars in thousands) |  | 2025 |  |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | Prior |  |  | Term Total |  |  | Loans |  |  | Total |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 36,861 |  |  | $ | 88,985 |  |  | $ | 53,832 |  |  | $ | 13,126 |  |  | $ | 40,037 |  |  | $ | 13,399 |  |  | $ | 246,240 |  |  | $ | 437,487 |  |  | $ | 683,727 |
Grades 5 – 7 |  |  | 99,390 |  |  |  | 146,328 |  |  |  | 67,494 |  |  |  | 28,903 |  |  |  | 10,321 |  |  |  | 2,740 |  |  |  | 355,176 |  |  |  | 316,063 |  |  |  | 671,239 |
Grades 8 – 9 |  |  | 22 |  |  |  | 1,305 |  |  |  | 428 |  |  |  | 25 |  |  |  | 249 |  |  |  | 26 |  |  |  | 2,055 |  |  |  | 18,347 |  |  |  | 20,402 |
Total |  | $ | 136,273 |  |  | $ | 236,618 |  |  | $ | 121,754 |  |  | $ | 42,054 |  |  | $ | 50,607 |  |  | $ | 16,165 |  |  | $ | 603,471 |  |  | $ | 771,897 |  |  | $ | 1,375,368 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 4 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4 |  |  | $ | 7 |  |  | $ | 11 |
Vacant Land, Land Development and Residential Construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 12,721 |  |  | $ | 6,415 |  |  | $ | 1,558 |  |  | $ | 750 |  |  | $ | 427 |  |  | $ | 183 |  |  | $ | 22,054 |  |  | $ | 0 |  |  | $ | 22,054 |
Grades 5 – 7 |  |  | 22,047 |  |  |  | 19,164 |  |  |  | 2,078 |  |  |  | 1,605 |  |  |  | 168 |  |  |  | 401 |  |  |  | 45,463 |  |  |  | 0 |  |  |  | 45,463 |
Grades 8 – 9 |  |  | 0 |  |  |  | 0 |  |  |  | 3 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 3 |  |  |  | 0 |  |  |  | 3 |
Total |  | $ | 34,768 |  |  | $ | 25,579 |  |  | $ | 3,639 |  |  | $ | 2,355 |  |  | $ | 595 |  |  | $ | 584 |  |  | $ | 67,520 |  |  | $ | 0 |  |  | $ | 67,520 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Owner Occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 76,395 |  |  | $ | 146,995 |  |  | $ | 69,521 |  |  | $ | 86,575 |  |  | $ | 67,613 |  |  | $ | 23,694 |  |  | $ | 470,793 |  |  | $ | 0 |  |  | $ | 470,793 |
Grades 5 – 7 |  |  | 54,653 |  |  |  | 63,405 |  |  |  | 47,058 |  |  |  | 48,480 |  |  |  | 22,787 |  |  |  | 15,180 |  |  |  | 251,563 |  |  |  | 0 |  |  |  | 251,563 |
Grades 8 – 9 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,720 |  |  |  | 0 |  |  |  | 30 |  |  |  | 2,750 |  |  |  | 0 |  |  |  | 2,750 |
Total |  | $ | 131,048 |  |  | $ | 210,400 |  |  | $ | 116,579 |  |  | $ | 137,775 |  |  | $ | 90,400 |  |  | $ | 38,904 |  |  | $ | 725,106 |  |  | $ | 0 |  |  | $ | 725,106 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Non-Owner Occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 65,713 |  |  | $ | 92,693 |  |  | $ | 60,448 |  |  | $ | 74,512 |  |  | $ | 85,516 |  |  | $ | 71,792 |  |  | $ | 450,674 |  |  | $ | 0 |  |  | $ | 450,674 |
Grades 5 – 7 |  |  | 67,152 |  |  |  | 192,177 |  |  |  | 199,320 |  |  |  | 83,389 |  |  |  | 74,231 |  |  |  | 61,537 |  |  |  | 677,806 |  |  |  | 0 |  |  |  | 677,806 |
Grades 8 – 9 |  |  | 5,532 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 5,532 |  |  |  | 0 |  |  |  | 5,532 |
Total |  | $ | 138,397 |  |  | $ | 284,870 |  |  | $ | 259,768 |  |  | $ | 157,901 |  |  | $ | 159,747 |  |  | $ | 133,329 |  |  | $ | 1,134,012 |  |  | $ | 0 |  |  | $ | 1,134,012 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Multi-Family and Residential Rental: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 25,909 |  |  | $ | 16,350 |  |  | $ | 40,239 |  |  | $ | 9,676 |  |  | $ | 31,697 |  |  | $ | 32,232 |  |  | $ | 156,103 |  |  | $ | 0 |  |  | $ | 156,103 |
Grades 5 – 7 |  |  | 84,197 |  |  |  | 86,775 |  |  |  | 149,435 |  |  |  | 28,970 |  |  |  | 5,492 |  |  |  | 8,180 |  |  |  | 363,049 |  |  |  | 0 |  |  |  | 363,049 |
Grades 8 – 9 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 110,106 |  |  | $ | 103,125 |  |  | $ | 189,674 |  |  | $ | 38,646 |  |  | $ | 37,189 |  |  | $ | 40,412 |  |  | $ | 519,152 |  |  | $ | 0 |  |  | $ | 519,152 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total Commercial |  | $ | 550,592 |  |  | $ | 860,592 |  |  | $ | 691,414 |  |  | $ | 378,731 |  |  | $ | 338,538 |  |  | $ | 229,394 |  |  | $ | 3,049,261 |  |  | $ | 771,897 |  |  | $ | 3,821,158 |
Total Commercial year-to-date gross write offs |  | $ | 0 |  |  | $ | 4 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4 |  |  | $ | 7 |  |  | $ | 11 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family Mortgages: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 22,457 |  |  | $ | 66,479 |  |  | $ | 114,073 |  |  | $ | 292,549 |  |  | $ | 192,250 |  |  | $ | 109,133 |  |  | $ | 796,941 |  |  | $ | 0 |  |  | $ | 796,941 |
Nonperforming |  |  | 0 |  |  |  | 173 |  |  |  | 82 |  |  |  | 1,083 |  |  |  | 360 |  |  |  | 788 |  |  |  | 2,486 |  |  |  | 0 |  |  |  | 2,486 |
Total |  | $ | 22,457 |  |  | $ | 66,652 |  |  | $ | 114,155 |  |  | $ | 293,632 |  |  | $ | 192,610 |  |  | $ | 109,921 |  |  | $ | 799,427 |  |  | $ | 0 |  |  | $ | 799,427 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 22 |  |  | $ | 61 |  |  | $ | 3 |  |  | $ | 86 |  |  | $ | 0 |  |  | $ | 86 |
Other Consumer Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 2,970 |  |  | $ | 4,160 |  |  | $ | 2,317 |  |  | $ | 965 |  |  | $ | 479 |  |  | $ | 673 |  |  | $ | 11,564 |  |  | $ | 65,870 |  |  | $ | 77,434 |
Nonperforming |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 2,970 |  |  | $ | 4,160 |  |  | $ | 2,317 |  |  | $ | 965 |  |  | $ | 479 |  |  | $ | 673 |  |  | $ | 11,564 |  |  | $ | 65,870 |  |  | $ | 77,434 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4 |  |  | $ | 0 |  |  | $ | 4 |
Total Retail |  | $ | 25,427 |  |  | $ | 70,812 |  |  | $ | 116,472 |  |  | $ | 294,597 |  |  | $ | 193,089 |  |  | $ | 110,594 |  |  | $ | 810,991 |  |  | $ | 65,870 |  |  | $ | 876,861 |
Total Retail year-to-date gross write offs |  | $ | 0 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 22 |  |  | $ | 61 |  |  | $ | 3 |  |  | $ | 90 |  |  | $ | 0 |  |  | $ | 90 |
Total |  | $ | 576,019 |  |  | $ | 931,404 |  |  | $ | 807,886 |  |  | $ | 673,328 |  |  | $ | 531,627 |  |  | $ | 339,988 |  |  | $ | 3,860,252 |  |  | $ | 837,767 |  |  | $ | 4,698,019 |
Total year-to-date gross write offs |  | $ | 0 |  |  | $ | 6 |  |  | $ | 2 |  |  | $ | 22 |  |  | $ | 61 |  |  | $ | 3 |  |  | $ | 94 |  |  | $ | 7 |  |  | $ | 101 |

There were lines of credit with principal balances of $0.6 million that were converted to term loans during the first six months of 2025.

(Continued)

27

Table of Contents
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Revolving |  |  | Grand |
(Dollars in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | Prior |  |  | Term Total |  |  | Loans |  |  | Total |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 102,898 |  |  | $ | 68,536 |  |  | $ | 41,609 |  |  | $ | 47,534 |  |  | $ | 9,551 |  |  | $ | 8,412 |  |  | $ | 278,540 |  |  | $ | 351,311 |  |  | $ | 629,851 |
Grades 5 – 7 |  |  | 188,267 |  |  |  | 88,471 |  |  |  | 31,755 |  |  |  | 13,513 |  |  |  | 3,298 |  |  |  | 2,019 |  |  |  | 327,323 |  |  |  | 309,860 |  |  |  | 637,183 |
Grades 8 – 9 |  |  | 4,813 |  |  |  | 401 |  |  |  | 3,436 |  |  |  | 262 |  |  |  | 69 |  |  |  | 0 |  |  |  | 8,981 |  |  |  | 11,293 |  |  |  | 20,274 |
Total |  | $ | 295,978 |  |  | $ | 157,408 |  |  | $ | 76,800 |  |  | $ | 61,309 |  |  | $ | 12,918 |  |  | $ | 10,431 |  |  | $ | 614,844 |  |  | $ | 672,464 |  |  | $ | 1,287,308 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 6 |  |  | $ | 6 |
Vacant Land, Land Development and Residential Construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 18,536 |  |  | $ | 4,997 |  |  | $ | 610 |  |  | $ | 645 |  |  | $ | 177 |  |  | $ | 226 |  |  | $ | 25,191 |  |  | $ | 0 |  |  | $ | 25,191 |
Grades 5 – 7 |  |  | 31,692 |  |  |  | 7,681 |  |  |  | 1,855 |  |  |  | 49 |  |  |  | 0 |  |  |  | 463 |  |  |  | 41,740 |  |  |  | 0 |  |  |  | 41,740 |
Grades 8 – 9 |  |  | 0 |  |  |  | 5 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 5 |  |  |  | 0 |  |  |  | 5 |
Total |  | $ | 50,228 |  |  | $ | 12,683 |  |  | $ | 2,465 |  |  | $ | 694 |  |  | $ | 177 |  |  | $ | 689 |  |  | $ | 66,936 |  |  | $ | 0 |  |  | $ | 66,936 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Owner Occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 179,763 |  |  | $ | 84,641 |  |  | $ | 88,794 |  |  | $ | 75,702 |  |  | $ | 34,031 |  |  | $ | 3,469 |  |  | $ | 466,400 |  |  | $ | 0 |  |  | $ | 466,400 |
Grades 5 – 7 |  |  | 108,316 |  |  |  | 61,998 |  |  |  | 52,072 |  |  |  | 21,833 |  |  |  | 12,386 |  |  |  | 5,611 |  |  |  | 262,216 |  |  |  | 13,290 |  |  |  | 275,506 |
Grades 8 – 9 |  |  | 714 |  |  |  | 0 |  |  |  | 6,184 |  |  |  | 0 |  |  |  | 33 |  |  |  | 0 |  |  |  | 6,931 |  |  |  | 0 |  |  |  | 6,931 |
Total |  | $ | 288,793 |  |  | $ | 146,639 |  |  | $ | 147,050 |  |  | $ | 97,535 |  |  | $ | 46,450 |  |  | $ | 9,080 |  |  | $ | 735,547 |  |  | $ | 13,290 |  |  | $ | 748,837 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Non-Owner Occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 84,773 |  |  | $ | 79,911 |  |  | $ | 76,468 |  |  | $ | 93,034 |  |  | $ | 84,355 |  |  | $ | 13,703 |  |  | $ | 432,244 |  |  | $ | 0 |  |  | $ | 432,244 |
Grades 5 – 7 |  |  | 194,634 |  |  |  | 220,681 |  |  |  | 84,897 |  |  |  | 91,569 |  |  |  | 85,828 |  |  |  | 10,569 |  |  |  | 688,178 |  |  |  | 0 |  |  |  | 688,178 |
Grades 8 – 9 |  |  | 7,982 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 7,982 |  |  |  | 0 |  |  |  | 7,982 |
Total |  | $ | 287,389 |  |  | $ | 300,592 |  |  | $ | 161,365 |  |  | $ | 184,603 |  |  | $ | 170,183 |  |  | $ | 24,272 |  |  | $ | 1,128,404 |  |  | $ | 0 |  |  | $ | 1,128,404 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Real Estate – Multi-Family and Residential Rental: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 16,271 |  |  | $ | 46,870 |  |  | $ | 10,107 |  |  | $ | 62,744 |  |  | $ | 33,337 |  |  | $ | 3,780 |  |  | $ | 173,109 |  |  | $ | 0 |  |  | $ | 173,109 |
Grades 5 – 7 |  |  | 81,919 |  |  |  | 174,468 |  |  |  | 32,506 |  |  |  | 4,559 |  |  |  | 5,626 |  |  |  | 2,985 |  |  |  | 302,063 |  |  |  | 37 |  |  |  | 302,100 |
Grades 8 – 9 |  |  | 47 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 563 |  |  |  | 0 |  |  |  | 610 |  |  |  | 0 |  |  |  | 610 |
Total |  | $ | 98,237 |  |  | $ | 221,338 |  |  | $ | 42,613 |  |  | $ | 67,303 |  |  | $ | 39,526 |  |  | $ | 6,765 |  |  | $ | 475,782 |  |  | $ | 37 |  |  | $ | 475,819 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total Commercial |  | $ | 1,020,625 |  |  | $ | 838,660 |  |  | $ | 430,293 |  |  | $ | 411,444 |  |  | $ | 269,254 |  |  | $ | 51,237 |  |  | $ | 3,021,513 |  |  | $ | 685,791 |  |  | $ | 3,707,304 |
Total Commercial year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 6 |  |  | $ | 6 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 Family Mortgages: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 72,349 |  |  | $ | 122,718 |  |  | $ | 307,161 |  |  | $ | 203,052 |  |  | $ | 73,052 |  |  | $ | 46,290 |  |  | $ | 824,622 |  |  | $ | 0 |  |  | $ | 824,622 |
Nonperforming |  |  | 0 |  |  |  | 89 |  |  |  | 1,626 |  |  |  | 439 |  |  |  | 0 |  |  |  | 821 |  |  |  | 2,975 |  |  |  | 0 |  |  |  | 2,975 |
Total |  | $ | 72,349 |  |  | $ | 122,807 |  |  | $ | 308,787 |  |  | $ | 203,491 |  |  | $ | 73,052 |  |  | $ | 47,111 |  |  | $ | 827,597 |  |  | $ | 0 |  |  | $ | 827,597 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Other Consumer Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 5,863 |  |  | $ | 3,008 |  |  | $ | 1,428 |  |  | $ | 732 |  |  | $ | 361 |  |  | $ | 653 |  |  | $ | 12,045 |  |  | $ | 53,835 |  |  | $ | 65,880 |
Nonperforming |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 5,863 |  |  | $ | 3,008 |  |  | $ | 1,428 |  |  | $ | 732 |  |  | $ | 361 |  |  | $ | 653 |  |  | $ | 12,045 |  |  | $ | 53,835 |  |  | $ | 65,880 |
Year-to-date gross write offs |  | $ | 0 |  |  | $ | 1 |  |  | $ | 18 |  |  | $ | 8 |  |  | $ | 0 |  |  | $ | 5 |  |  | $ | 32 |  |  | $ | 3 |  |  | $ | 35 |
Total Retail |  | $ | 78,212 |  |  | $ | 125,815 |  |  | $ | 310,215 |  |  | $ | 204,223 |  |  | $ | 73,413 |  |  | $ | 47,764 |  |  | $ | 839,642 |  |  | $ | 53,835 |  |  | $ | 893,477 |
Total Retail year-to-date gross write offs |  | $ | 0 |  |  | $ | 1 |  |  | $ | 18 |  |  | $ | 8 |  |  | $ | 0 |  |  | $ | 5 |  |  | $ | 32 |  |  | $ | 3 |  |  | $ | 35 |
Total |  | $ | 1,098,837 |  |  | $ | 964,475 |  |  | $ | 740,508 |  |  | $ | 615,667 |  |  | $ | 342,667 |  |  | $ | 99,001 |  |  | $ | 3,861,155 |  |  | $ | 739,626 |  |  | $ | 4,600,781 |
Total year-to-date gross write offs |  | $ | 0 |  |  | $ | 1 |  |  | $ | 18 |  |  | $ | 8 |  |  | $ | 0 |  |  | $ | 5 |  |  | $ | 32 |  |  | $ | 9 |  |  | $ | 41 |

There were lines of credit with principal balances of $9.1 million as of December 31, 2023 that were converted to term loans during 2024.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

We use a migration to loss methodology to determine historical loss rates for commercial loans given the comprehensive loan grading process employed by our bank for over two decades, while an open pool approach is best suited for retail loans given the smaller dollar size of the segments. A baseline loss rate is produced at each reporting date for each loan portfolio segment using bank-specific loan charge-off and recovery data over a defined historical look-back period. The look-back period represents the number of data periods that will be used to calculate a baseline loss rate for each loan portfolio segment. We determined that the look-back period commencing on January 1, 2011 through the current reporting date was reasonable and appropriate, which was used in the calculation of both the June 30, 2025, and December 31, 2024 allowance for credit losses.

Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss. Our prepayment speed assumptions are developed at the loan segment level based upon the consideration of all relevant data which we believe could impact anticipated customer behavior, including changes in interest rates, economic conditions, and underlying property valuations. For the commercial portfolio segments, we assumed a 2.0% prepayment speed as of both June 30, 2025 and December 31, 2024 as we deemed there to be no considerable changes from historical experience. For the retail 1-4 family mortgage and retail other consumer portfolios, we used a prepayment speed of 7.8% as of June 30, 2025 and December 31, 2024.

During each reporting period, we also consider the need to adjust the historical loss rates as determined to reflect the extent to which we expect current conditions and reasonable and supportable economic forecasts to differ from the conditions that existed for the period over which the historical loss information was determined. These qualitative adjustments may increase or decrease our estimate of expected future credit losses. As of June 30, 2025 and December 31, 2024, we used a one-year reasonable and supportable economic forecast period, with a six-month straight-line reversion period for all loan segments. The economic forecasts used for our June 30, 2025 allowance calculation reflected a $0.1 million allowance balance reduction. The forecasts used for our December 31, 2024 allowance calculation reflected a $2.2 million allowance balance reduction.

Individual loans exhibiting unique risk characteristics, which differentiated the loans from other loans within the loan segments and were evaluated for expected credit losses on an individual basis, totaled $11.2 million and $7.4 million as of June 30, 2025 and December 31, 2024, respectively. Individual allowance allocations totaled $3.9 million and $2.2 million as of June 30, 2025 and December 31, 2024, respectively.

Activity in the allowance for credit losses during the three and six months ended June 30, 2025 is as follows:

(Dollars in thousands) |  | Commercial and industrial |  |  | Commercial vacant land, land development and residential construction |  |  | Commercial real estate – owner occupied |  |  | Commercial real estate – non-owner occupied |  |  | Commercial real estate – multi-family and residential rental |  |  | 1-4 family mortgages |  |  | Other consumer loans |  |  | Unallocated |  |  | Total |
Balance at 3-31-25 |  | $ | 11,798 |  |  | $ | 386 |  |  | $ | 7,679 |  |  | $ | 11,946 |  |  | $ | 3,878 |  |  | $ | 18,874 |  |  | $ | 2,102 |  |  | $ | 3 |  |  | $ | 56,666 |
Provision for credit losses |  |  | (39 | ) |  |  | 0 |  |  |  | 11 |  |  |  | 1,854 |  |  |  | 416 |  |  |  | (989 | ) |  |  | 207 |  |  |  | 140 |  |  |  | 1,600 |
Charge-offs |  |  | (11 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (25 | ) |  |  | (2 | ) |  |  | 0 |  |  |  | (38 | )
Recoveries |  |  | 23 |  |  |  | 1 |  |  |  | 1 |  |  |  | 0 |  |  |  | 3 |  |  |  | 105 |  |  |  | 14 |  |  |  | 0 |  |  |  | 147 |
Ending balance |  | $ | 11,771 |  |  | $ | 387 |  |  | $ | 7,691 |  |  | $ | 13,800 |  |  | $ | 4,297 |  |  | $ | 17,965 |  |  | $ | 2,321 |  |  | $ | 143 |  |  | $ | 58,375 |
Balance at 12-31-24 |  | $ | 11,165 |  |  | $ | 367 |  |  | $ | 7,671 |  |  | $ | 10,919 |  |  | $ | 3,667 |  |  | $ | 18,702 |  |  | $ | 1,936 |  |  | $ | 27 |  |  | $ | 54,454 |
Provision for credit losses |  |  | 559 |  |  |  | 18 |  |  |  | 17 |  |  |  | 2,881 |  |  |  | 622 |  |  |  | (803 | ) |  |  | 290 |  |  |  | 116 |  |  |  | 3,700 |
Charge-offs |  |  | (11 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (86 | ) |  |  | (4 | ) |  |  | 0 |  |  |  | (101 | )
Recoveries |  |  | 58 |  |  |  | 2 |  |  |  | 3 |  |  |  | 0 |  |  |  | 8 |  |  |  | 152 |  |  |  | 99 |  |  |  | 0 |  |  |  | 322 |
Ending balance |  | $ | 11,771 |  |  | $ | 387 |  |  | $ | 7,691 |  |  | $ | 13,800 |  |  | $ | 4,297 |  |  | $ | 17,965 |  |  | $ | 2,321 |  |  | $ | 143 |  |  | $ | 58,375 |

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Activity in the allowance for credit losses during the three and six months ended June 30, 2024 is as follows:

(Dollars in thousands) |  | Commercial and industrial |  |  | Commercial vacant land, land development and residential construction |  |  | Commercial real estate – owner occupied |  |  | Commercial real estate – non-owner occupied |  |  | Commercial real estate – multi-family and residential rental |  |  | 1-4 family mortgages |  |  | Other consumer loans |  |  | Unallocated |  |  | Total |
Balance at 3-31-24 |  | $ | 9,178 |  |  | $ | 387 |  |  | $ | 7,092 |  |  | $ | 10,141 |  |  | $ | 3,420 |  |  | $ | 18,580 |  |  | $ | 2,825 |  |  | $ | 15 |  |  | $ | 51,638 |
Provision for credit losses |  |  | 4,010 |  |  |  | 4 |  |  |  | (4 | ) |  |  | 108 |  |  |  | 165 |  |  |  | (93 | ) |  |  | (684 | ) |  |  | (6 | ) |  |  | 3,500 |
Charge-offs |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (26 | ) |  |  | 0 |  |  |  | (26 | )
Recoveries |  |  | 27 |  |  |  | 2 |  |  |  | 102 |  |  |  | 0 |  |  |  | 4 |  |  |  | 26 |  |  |  | 135 |  |  |  | 0 |  |  |  | 296 |
Ending balance |  | $ | 13,215 |  |  | $ | 393 |  |  | $ | 7,190 |  |  | $ | 10,249 |  |  | $ | 3,589 |  |  | $ | 18,513 |  |  | $ | 2,250 |  |  | $ | 9 |  |  | $ | 55,408 |
Balance at 12-31-23 |  | $ | 7,441 |  |  | $ | 384 |  |  | $ | 7,186 |  |  | $ | 9,852 |  |  | $ | 3,184 |  |  | $ | 18,986 |  |  | $ | 2,881 |  |  | $ | 0 |  |  | $ | 49,914 |
Provision for credit losses |  |  | 5,476 |  |  |  | 6 |  |  |  | (155 | ) |  |  | 397 |  |  |  | 397 |  |  |  | (569 | ) |  |  | (761 | ) |  |  | 9 |  |  |  | 4,800 |
Charge-offs |  |  | (6 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (35 | ) |  |  | 0 |  |  |  | (41 | )
Recoveries |  |  | 304 |  |  |  | 3 |  |  |  | 159 |  |  |  | 0 |  |  |  | 8 |  |  |  | 96 |  |  |  | 165 |  |  |  | 0 |  |  |  | 735 |
Ending balance |  | $ | 13,215 |  |  | $ | 393 |  |  | $ | 7,190 |  |  | $ | 10,249 |  |  | $ | 3,589 |  |  | $ | 18,513 |  |  | $ | 2,250 |  |  | $ | 9 |  |  | $ | 55,408 |

There were no loan modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2025. The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the three months ended June 30, 2025:

|  | Interest Rate |  |  |  |  |  |  | Principal |
(Dollars in thousands) |  | Reduction |  |  | Term Extension |  |  | Forgiveness |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 0 |  |  | $ | 20 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  | $ | 0 |  |  | $ | 20 |  |  | $ | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total loans |  | $ | 0 |  |  | $ | 20 |  |  | $ | 0 |

(Continued)

30

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the three months ended June 30, 2024:

|  | Interest Rate |  |  |  |  |  |  | Principal |
(Dollars in thousands) |  | Reduction |  |  | Term Extension |  |  | Forgiveness |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 0 |  |  | $ | 1,818 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  | $ | 0 |  |  | $ | 1,818 |  |  | $ | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total loans |  | $ | 0 |  |  | $ | 1,818 |  |  | $ | 0 |

The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the six months ended June 30, 2024:

|  | Interest Rate |  |  |  |  |  |  | Principal |
(Dollars in thousands) |  | Reduction |  |  | Term Extension |  |  | Forgiveness |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 0 |  |  | $ | 2,318 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  | $ | 0 |  |  | $ | 2,318 |  |  | $ | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total loans |  | $ | 0 |  |  | $ | 2,318 |  |  | $ | 0 |

Loans listed under Term Extension were generally granted a series of short-term maturity extensions as part of the workout process and associated forbearance agreements.

The following table presents the amortized cost basis of loans that have been modified in the past twelve months to borrowers experiencing financial difficulty by payment status and loan segment as of June 30, 2025:

|  |  |  |  |  | 30 – 89 Days |  |  | 90 + Days |  |  |  |  |
(Dollars in thousands) |  | Current |  |  | Past Due |  |  | Past Due |  |  | Total |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 3,883 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 3,883 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  | $ | 3,883 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 3,883 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other consumer loans |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total loans |  | $ | 3,883 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 3,883 |

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

|  | June 30, |  |  | December 31, |
(Dollars in thousands) |  | 2025 |  |  | 2024 |
Land and improvements |  | $ | 14,060 |  |  | $ | 14,021 |
Buildings |  |  | 64,411 |  |  |  | 62,365 |
Furniture and equipment |  |  | 28,364 |  |  |  | 26,657 |
|  |  | 106,835 |  |  |  | 103,043 |
Less: accumulated depreciation |  |  | 52,043 |  |  |  | 49,616 |
Premises and equipment, net |  | $ | 54,792 |  |  | $ | 53,427 |

Depreciation expense totaled $1.3 million and $1.5 million during the second quarters of 2025 and 2024, respectively.

We enter into facility leases in the normal course of business. As of June 30, 2025, we were under lease contracts for eleven of our banking facilities. The leases have maturity dates ranging from November, 2025 through May, 2048, with a weighted average life of 9.3 years as of June 30, 2025. All of our leases have multiple three- to five-year extensions; however, these were not factored in the lease maturities and weighted average lease term as it was not reasonably certain we would exercise the options on the dates we entered into the lease agreements.

Leases are classified as either operating or finance leases at the lease commencement date, with all of our current leases determined to be operating leases. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date at the estimated present value of lease payments over the lease term. We use our incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments. The weighted average discount rate for leases was 6.53% as of June 30, 2025.

The right-of-use assets, included in premises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included in other liabilities on our Consolidated Balance Sheets, totaled $4.2 million and $4.4 million as of June 30, 2025, and December 31, 2024, respectively. As permitted by applicable accounting standards, we have elected not to recognize short-term leases with original terms of twelve months or less on our Consolidated Balance Sheets. Total operating lease expense associated with the leases aggregated $0.3 million during the second quarter of 2025 and $0.4 million during the second quarter of 2024.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. PREMISES AND EQUIPMENT, NET (Continued)

Future lease payments were as follows as of June 30, 2025:

(Dollars in thousands) |  |  |  |
2025 |  | $ | 593 |
2026 |  |  | 1,159 |
2027 |  |  | 1,089 |
2028 |  |  | 913 |
2029 |  |  | 713 |
Thereafter |  |  | 1,215 |
Total undiscounted lease payments |  |  | 5,682 |
Less effect of discounting |  |  | (1,453 | )
Present value of future lease payments (lease liability) |  | $ | 4,229 |

5. DEPOSITS

Our total deposits at June 30, 2025 were $4.71 billion, an increase of $12.1 million, or 0.3%, from December 31, 2024. The components of our outstanding balances at June 30, 2025 and December 31, 2024, and percentage change in deposits from the end of 2024 to the end of the second quarter of 2025, are as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Percent |
|  | June 30, 2025 |  |  | December 31, 2024 |  |  | Increase |
(Dollars in thousands) |  | Balance |  |  | % |  |  | Balance |  |  | % |  |  | (Decrease) |
Noninterest-bearing checking |  | $ | 1,180,801 |  |  |  | 25.1 | % |  | $ | 1,264,523 |  |  |  | 26.9 | % |  |  | (6.6 | )%
Interest-bearing checking |  |  | 705,773 |  |  |  | 15.0 |  |  |  | 738,291 |  |  |  | 15.7 |  |  |  | (4.4 | )
Money market |  |  | 1,592,417 |  |  |  | 33.8 |  |  |  | 1,516,436 |  |  |  | 32.3 |  |  |  | 5.0 |
Savings |  |  | 223,107 |  |  |  | 4.7 |  |  |  | 221,900 |  |  |  | 4.7 |  |  |  | 0.5 |
Time, under $100,000 |  |  | 219,935 |  |  |  | 4.7 |  |  |  | 207,534 |  |  |  | 4.4 |  |  |  | 6.0 |
Time, $100,000 and over |  |  | 589,522 |  |  |  | 12.5 |  |  |  | 599,983 |  |  |  | 12.8 |  |  |  | (1.7 | )
Total local deposits |  |  | 4,511,555 |  |  |  | 95.8 |  |  |  | 4,548,667 |  |  |  | 96.8 |  |  |  | (0.8 | )
Out-of-area time, $100,000 and over |  |  | 198,917 |  |  |  | 4.2 |  |  |  | 149,699 |  |  |  | 3.2 |  |  |  | 32.9 |
Total deposits |  | $ | 4,710,472 |  |  |  | 100.0 | % |  | $ | 4,698,366 |  |  |  | 100.0 | % |  |  | 0.3 | %

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements is as follows:

|  | Six Months Ended |  |  | Twelve Months Ended |
(Dollars in thousands) |  | June 30, 2025 |  |  | December 31, 2024 |
Outstanding balance at end of period |  | $ | 242,785 |  |  | $ | 121,521 |
Average interest rate at end of period |  |  | 3.17 | % |  |  | 2.17 | %
Average daily balance during the period |  | $ | 231,926 |  |  | $ | 224,878 |
Average interest rate during the period |  |  | 3.20 | % |  |  | 3.43 | %
Maximum daily balance during the period |  | $ | 285,549 |  |  | $ | 278,227 |

Repurchase agreements have maturities of one business day. Repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities on our Consolidated Balance Sheets. Repurchase agreements are secured by U.S. Government agency securities with an aggregate fair value equal to the aggregate outstanding balance of the repurchase agreements. The securities, which are included in securities available for sale on our Consolidated Balance Sheets, are held in safekeeping by a correspondent bank.

7. FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

FHLBI bullet advances totaled $330 million at June 30, 2025, and were scheduled to mature at varying dates from September 2025 through June 2030, with fixed rates of interest from 0.82% to 4.50% and averaging 3.25%. FHLBI bullet advances totaled $360 million at December 31, 2024, and were scheduled to mature at varying dates from January 2025 through June 2030, with fixed rates of interest from 0.70% to 4.54% and averaging 3.10%.

Maturities of FHLBI bullet advances as of June 30, 2025 were as follows:

(Dollars in thousands) |  |  |  |
2025 |  | $ | 30,000 |
2026 |  |  | 80,000 |
2027 |  |  | 100,000 |
2028 |  |  | 90,000 |
2029 |  |  | 10,000 |
Thereafter |  |  | 20,000 |

FHLBI amortizing advances totaled $26.2 million as of June 30, 2025, with an average rate of 2.52% and with final maturities in 2042. FHLBI amortizing advances totaled $27.1 million as of December 31, 2024, with an average rate of 2.52% and with final maturities in 2042. FHLBI amortizing advances are obtained periodically to assist in managing interest rate risk associated with certain longer-term fixed rate commercial loans, with annual principal payments that closely align with the scheduled amortization of the underlying commercial loans.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES (Continued)

Scheduled principal payments on FHLBI amortizing advances as of June 30, 2025 were as follows:

(Dollars in thousands) |  |  |  |
2025 |  | $ | 0 |
2026 |  |  | 900 |
2027 |  |  | 938 |
2028 |  |  | 979 |
2029 |  |  | 1,022 |
Thereafter |  |  | 22,382 |

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 June 30, 2025 totaled $1.06 billion, with remaining availability based on collateral of $698 million.

8. STOCK-BASED COMPENSATION

Stock-based compensation plans are used to provide directors and employees with an increased incentive to contribute to our long-term performance and growth, to align the interests of directors and employees with the interests of our shareholders through the opportunity for increased stock ownership and to attract and retain directors and employees. Stock-based compensation expense, reported as noninterest expense in the Consolidated Statements of Income, totaled $1.7 million and $1.6 million during the six months ended June 30, 2025 and 2024, respectively.
The Stock Incentive Plan of 2020 was approved by shareholders in May, 2020, and was effectively replaced with the Stock Incentive Plan of 2023 that was approved by shareholders in May, 2023. Under the Stock Incentive Plan of 2023, incentive awards may include, but are not limited to, stock options, restricted stock, stock appreciation rights and stock awards. Price, vesting and expiration date parameters are determined by Mercantile’s Compensation Committee on a grant-by-grant basis. No payments are required from employees for restricted stock awards. The restricted stock awards granted through the plan fully vest after three years and, in the case of performance-based restricted stock issued to executive officers issued under the plan, are subject to the attainment of pre-determined performance goals. There were no restricted stock grants during the six months ended June 30, 2024.

A summary of restricted stock activity during the six months ended June 30, 2025, is as follows:

|  |  |  |  |  | Weighted |
|  |  |  |  |  | Average |
|  | Shares |  |  | Fair Value |
Nonvested at beginning of the period |  |  | 228,646 |  |  | $ | 35.84 |
Grants |  |  | 84,685 |  |  |  | 50.34 |
Vested |  |  | (34,053 | ) |  |  | 34.79 |
Forfeited |  |  | (2,030 | ) |  |  | 40.96 |
Nonvested at end of the period |  |  | 277,248 |  |  | $ | 40.54 |

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8. STOCK-BASED COMPENSATION (Continued)

Of the restricted stock shares granted during the six months ended June 30, 2025, 24,910 shares are performance-based awards made to our Named Executive Officers at the target level and are subject to the attainment of pre-determined performance goals. As of June 30, 2025, there were approximately 290,000 shares authorized for future incentive awards, and as of December 31, 2024, there were approximately 383,000 shares authorized for future incentive awards.

We periodically grant shares of common stock to our Corporate and Bank Board Directors for retainer payments with the related expense being recorded over the period of the Directors' service, as summarized below:

|  |  |  |  |  | Total Cost |  |
Grant Year |  | Shares Granted |  |  | (in thousands) |  | Covered Period
2023 |  |  | 11,529 |  |  |  | 350 |  | June 1, 2023 - May 31, 2024
2024 |  |  | 11,316 |  |  |  | 423 |  | June 1, 2024 - May 31, 2025
2025 |  |  | 9,210 |  |  |  | 408 |  | June 1, 2025 - May 31, 2026

In March 2025, the Company adopted the 2025 Employee Stock Purchase Plan ("ESPP"), offering a 5% discount on the market price of the Company's common stock. The ESPP was approved by the Company's shareholders on May 22, 2025. The Company reserved 200,000 shares of common stock for future issuance under the ESPP, subject to adjustment. All present and future active and full time employees of the Company or its subsidiaries are eligible to participate in the ESPP other than temporary employees, interns, and officers subject to Section 16 of the Securities and Exchange Act of 1934, as amended. Eligible employees can purchase shares on each quarterly purchase date through payroll deductions of not less than $5 nor more than $200. The purchase price will be the lower of 95% of the fair market value of the Company's stock at the commencement of the offering period or the fair market value of a share of common stock on the stock purchase date. Each offering period spans three months, with the first offering period beginning on July 1, 2025. As of June 30, 2025, 200,000 shares were reserved for future issuance under the ESPP.

9. COMMITMENTS AND OFF-BALANCE SHEET RISK

We are 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 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. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on management’s credit assessment of the borrower.

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

For commercial lines of credit, retail lines of credit and credit card average outstanding balances, we determined allowance requirements by calculating the difference between the average percent outstanding of the funded commitments over the past several years to actual percent outstanding at the end of the period and applying the respective expected loss allocation factors to the difference as this difference represents the average of unfunded commitments we expect to eventually be drawn upon. For commitments to make loans, we determine an allowance by applying the expected loss allocation factor to the amount expected to be funded. The calculated allowance aggregated $0.9 million and $1.0 million as of June 30, 2025 and December 31, 2024, respectively. We do not reserve for residential mortgage construction loans, as the loans are for one year or less and draws are governed by the receipt and satisfactory review of contractor and subcontractor sworn statements, lien waivers and title insurance company endorsements. Letters of credit are rarely drawn.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. COMMITMENTS AND OFF-BALANCE SHEET RISK (Continued)

At June 30, 2025, and December 31, 2024, the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at June 30, 2025 and December 31, 2024 is as follows:

|  | June 30, |  |  | December 31, |
(Dollars in thousands) |  | 2025 |  |  | 2024 |
Commercial unused lines of credit |  | $ | 1,498,658 |  |  | $ | 1,488,782 |
Unused lines of credit secured by 1–4 family residential properties |  |  | 95,838 |  |  |  | 84,298 |
Credit card unused lines of credit |  |  | 191,732 |  |  |  | 172,273 |
Other consumer unused lines of credit |  |  | 39,273 |  |  |  | 33,892 |
Commitments to make loans |  |  | 165,241 |  |  |  | 295,566 |
Standby letters of credit |  |  | 26,407 |  |  |  | 26,491 |
|  | $ | 2,017,149 |  |  | $ | 2,101,302 |

10. DERIVATIVES AND HEDGING ACTIVITIES

We are exposed to certain risks arising from both business operations and economic conditions. We principally manage the exposure to a wide variety of operational risks through core business activities. Economic risks, including interest rate, liquidity and credit risk, are primarily administered via the amount, sources and duration of assets and liabilities. Derivative financial instruments may also be used to assist in managing economic risks.

Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. We execute interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with correspondent banks to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap transactions.

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent banks are recognized directly to earnings. Fees paid to us by the correspondent banks are recognized as noninterest income on our Consolidated Statements of Income on the settlement date.

The fair values of derivative instruments as of June 30, 2025, are reflected in the following table.

|  |  |  |  | Balance Sheet |  |  |  |
(Dollars in thousands) |  | Notional Amount |  | Location |  | Fair Value |
Derivative Assets |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 946,199 |  | Other Assets |  | $ | 25,934 |
Derivative Liabilities |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 944,172 |  | Other Liabilities |  |  | 26,401 |

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $0.2 million during the six months ended June 30, 2025 that was recorded in other noninterest expense on our Consolidated Statements of Income. We have master netting arrangements with our correspondent banks that allow us to net receivables and payables. The netting agreement also allows us to net related cash collateral received and transferred up to the fair value exposure amount. We have elected to not offset these transactions on the Consolidated Balance Sheets. The netting of derivative instruments as of June 30, 2025 is presented in the following table.

|  |  |  |  |  | Gross Amounts Not Offset on the Consolidated Balance Sheet |
(Dollars in thousands) |  | Net Amounts Recognized |  |  | Financial Instruments |  |  | Cash Collateral Received or Posted |  |  | Net Amount |
Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 25,934 |  |  | $ | 10,239 |  |  | $ | 2,560 |  |  | $ | 13,135 |
Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 26,401 |  |  |  | 10,135 |  |  |  | 4,470 |  |  |  | 11,796 |

The fair values of derivative instruments as of December 31, 2024, are reflected in the following table.

|  |  |  |  | Balance Sheet |  |  |  |
(Dollars in thousands) |  | Notional Amount |  | Location |  | Fair Value
Derivative Assets |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 866,157 |  | Other Assets |  | $ | 26,793 |
Derivative Liabilities |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 864,130 |  | Other Liabilities |  |  | 27,050 |

The effect of interest rate swaps that are not designated as hedging instruments resulted in income of $0.1 million during the six months ended June 30, 2024 that was recorded in other noninterest expense on our Consolidated Statements of Income. The netting of derivative instruments as of December 31, 2024 is presented in the following table.

|  |  |  |  |  | Gross Amounts Not Offset on the Consolidated Balance Sheet |
(Dollars in thousands) |  | Net Amounts Recognized |  |  | Financial Instruments |  |  | Cash Collateral Received or Posted |  |  | Net Amount |
Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 26,793 |  |  | $ | 3,064 |  |  | $ | 19,040 |  |  | $ | 4,689 |
Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 27,050 |  |  |  | 2,915 |  |  |  | 1,640 |  |  |  | 22,495 |

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of June 30, 2025 and December 31, 2024:

|  | Level in |  | June 30, 2025 |  |  | December 31, 2024 |
|  | Fair |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Value |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
(Dollars in thousands) |  | Hierarchy |  | Values |  |  | Values |  |  | Values |  |  | Values |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | Level 1 |  | $ | 296,072 |  |  | $ | 296,072 |  |  | $ | 393,010 |  |  | $ | 393,010 |
Securities available for sale |  | (1) |  |  | 826,415 |  |  |  | 826,415 |  |  |  | 730,352 |  |  |  | 730,352 |
FHLBI stock |  | (2) |  |  | 21,513 |  |  |  | 21,513 |  |  |  | 21,513 |  |  |  | 21,513 |
Loans, net |  | Level 3 |  |  | 4,639,644 |  |  |  | 4,686,671 |  |  |  | 4,546,327 |  |  |  | 4,558,628 |
Mortgage loans held for sale |  | Level 2 |  |  | 27,569 |  |  |  | 28,090 |  |  |  | 15,824 |  |  |  | 16,047 |
Accrued interest receivable |  | Level 2 |  |  | 21,679 |  |  |  | 21,679 |  |  |  | 21,401 |  |  |  | 21,401 |
Interest rate swaps |  | Level 2 |  |  | 25,934 |  |  |  | 25,934 |  |  |  | 26,793 |  |  |  | 26,793 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | Level 2 |  |  | 4,710,472 |  |  |  | 4,576,047 |  |  |  | 4,698,366 |  |  |  | 4,541,896 |
Securities sold under agreements to repurchase |  | Level 2 |  |  | 242,785 |  |  |  | 242,785 |  |  |  | 121,521 |  |  |  | 121,521 |
FHLBI advances |  | Level 2 |  |  | 356,221 |  |  |  | 348,487 |  |  |  | 387,083 |  |  |  | 374,499 |
Subordinated debentures |  | Level 2 |  |  | 50,672 |  |  |  | 50,678 |  |  |  | 50,330 |  |  |  | 50,336 |
Subordinated notes |  | Level 2 |  |  | 89,486 |  |  |  | 84,296 |  |  |  | 89,314 |  |  |  | 81,825 |
Accrued interest payable |  | Level 2 |  |  | 10,208 |  |  |  | 10,208 |  |  |  | 10,201 |  |  |  | 10,201 |
Interest rate swaps |  | Level 2 |  |  | 26,401 |  |  |  | 26,401 |  |  |  | 27,050 |  |  |  | 27,050 |

| (1) | See Note 12 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

| (2) | It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount.

Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. Fair value for loans is based on an exit price model as required by ASU 2016-01, taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. The fair value for deposit accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair values of subordinated debentures, subordinated notes, and FHLBI advances are based on current rates for similar financing. The fair values of interest rate swaps are based on discounted cash flows using forecasted yield curves, along with insignificant unobservable inputs, such as borrower credit spreads. The fair value of other off-balance sheet items is estimated to be nominal.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency debt obligations, mortgage-backed securities issued or guaranteed by U.S. Government agencies, and municipal general obligation and revenue bonds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information that becomes known to us necessitates an impairment. There was no such impairment as of June 30, 2025, or December 31, 2024. We have no Level 1 securities available for sale.

Derivatives. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves. Insignificant unobservable inputs, such as borrower credit spreads, are also utilized.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. FAIR VALUES (Continued)

Mortgage loans held for sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of June 30, 2025 and December 31, 2024, we determined the fair value of our mortgage loans held for sale to be $28.1 million and $16.0 million, respectively.

Loans. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of significant borrower distress and on an ongoing basis until recovery or charge-off. The fair values of distressed loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2025 are as follows:

|  |  |  |  |  | Quoted |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Prices in |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Active |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Markets |  |  | Significant |  |  |  |  |
|  |  |  |  |  | for |  |  | Other |  |  | Significant |
|  |  |  |  |  | Identical |  |  | Observable |  |  | Unobservable |
|  |  |  |  |  | Assets |  |  | Inputs |  |  | Inputs |
(Dollars in thousands) |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Available for sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 587,671 |  |  | $ | 0 |  |  | $ | 587,671 |  |  | $ | 0 |
Mortgage-backed securities |  |  | 24,380 |  |  |  | 0 |  |  |  | 24,380 |  |  |  | 0 |
Municipal general obligation bonds |  |  | 182,118 |  |  |  | 0 |  |  |  | 181,746 |  |  |  | 372 |
Municipal revenue bonds |  |  | 31,746 |  |  |  | 0 |  |  |  | 31,746 |  |  |  | 0 |
Other investments |  |  | 500 |  |  |  | 0 |  |  |  | 500 |  |  |  | 0 |
Interest rate swaps |  |  | 25,934 |  |  |  | 0 |  |  |  | 25,934 |  |  |  | 0 |
Total assets |  | $ | 852,349 |  |  | $ | 0 |  |  | $ | 851,977 |  |  | $ | 372 |
Interest rate swaps |  |  | 26,401 |  |  |  | 0 |  |  |  | 26,401 |  |  |  | 0 |
Total liabilities |  | $ | 26,401 |  |  | $ | 0 |  |  | $ | 26,401 |  |  | $ | 0 |

There were no sales, purchases or transfers in or out of Level 3 during the six months ended June 30, 2025. The insignificant reduction in Level 3 municipal general obligation bonds during the six months ended June 30, 2025 reflects the scheduled maturities of such bonds.

(Continued)

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MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. FAIR VALUES (Continued)

The balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 are as follows:

|  |  |  |  |  | Quoted |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Prices in |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Active |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Markets |  |  | Significant |  |  |  |  |
|  |  |  |  |  | for |  |  | Other |  |  | Significant |
|  |  |  |  |  | Identical |  |  | Observable |  |  | Unobservable |
|  |  |  |  |  | Assets |  |  | Inputs |  |  | Inputs |
(Dollars in thousands) |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Available for sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency debt obligations |  | $ | 495,581 |  |  | $ | 0 |  |  | $ | 495,581 |  |  | $ | 0 |
Mortgage-backed securities |  |  | 25,368 |  |  |  | 0 |  |  |  | 25,368 |  |  |  | 0 |
Municipal general obligation bonds |  |  | 180,170 |  |  |  | 0 |  |  |  | 179,777 |  |  |  | 393 |
Municipal revenue bonds |  |  | 28,733 |  |  |  | 0 |  |  |  | 28,733 |  |  |  | 0 |
Other investments |  |  | 500 |  |  |  | 0 |  |  |  | 500 |  |  |  | 0 |
Interest rate swaps |  |  | 26,793 |  |  |  | 0 |  |  |  | 26,793 |  |  |  | 0 |
Total assets |  | $ | 757,145 |  |  | $ | 0 |  |  | $ | 756,752 |  |  | $ | 393 |
Interest rate swaps |  |  | 27,050 |  |  |  | 0 |  |  |  | 27,050 |  |  |  | 0 |
Total liabilities |  | $ | 27,050 |  |  | $ | 0 |  |  | $ | 27,050 |  |  | $ | 0 |

There were no sales, purchases or transfers in or out of Level 3 during 2024.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2025 are as follows:

|  |  |  |  |  | Quoted |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Prices in |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Active |  |  | Significant |  |  |  |  |
|  |  |  |  |  | Markets for |  |  | Other |  |  | Significant |
|  |  |  |  |  | Identical |  |  | Observable |  |  | Unobservable |
|  |  |  |  |  | Assets |  |  | Inputs |  |  | Inputs |
(Dollars in thousands) |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Collateral dependent loans |  | $ | 4,523 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 4,523 |

(Continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

12. FAIR VALUES (Continued)

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2024 are as follows:

|  |  |  |  |  | Quoted |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Prices |  |  |  |  |  |  |  |  |
|  |  |  |  |  | in Active |  |  | Significant |  |  |  |  |
|  |  |  |  |  | Markets for |  |  | Other |  |  | Significant |
|  |  |  |  |  | Identical |  |  | Observable |  |  | Unobservable |
|  |  |  |  |  | Assets |  |  | Inputs |  |  | Inputs |
(Dollars in thousands) |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Collateral dependent loans |  | $ | 2,173 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 2,173 |

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on nonperforming loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. We generally assign a discount factor range of 25% to 60% for commercial real estate dependent loans and foreclosed assets, and a discount factor range of 25% to 50% for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

13. 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 the 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 an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. As of June 30, 2025 and December 31, 2024, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since June 30, 2025, that we believe have changed our bank’s categorization.

(Continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. REGULATORY MATTERS (Continued)

Our actual capital levels and the minimum levels required to be categorized as adequately and well capitalized were:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Minimum Required |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | to be Well |
|  |  |  |  |  |  |  |  |  | Minimum Required |  |  | Capitalized Under |
|  |  |  |  |  |  |  |  |  | for Capital |  |  | Prompt Corrective |
|  | Actual |  |  | Adequacy Purposes |  |  | Action Regulations |
(Dollars in thousands) |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |
June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  | $ | 814,796 |  |  |  | 14.4 | % |  | $ | 453,646 |  |  |  | 8.0 | % |  |  | $ NA |  |  |  | NA% |
Bank |  |  | 779,255 |  |  |  | 13.9 |  |  |  | 449,180 |  |  |  | 8.0 |  |  |  | 561,475 |  |  |  | 10.0 |
Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 666,068 |  |  |  | 11.7 |  |  |  | 340,235 |  |  |  | 6.0 |  |  | NA |  |  | NA |
Bank |  |  | 720,013 |  |  |  | 12.8 |  |  |  | 336,885 |  |  |  | 6.0 |  |  |  | 449,180 |  |  |  | 8.0 |
Common equity tier 1 (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 617,813 |  |  |  | 10.9 |  |  |  | 255,176 |  |  |  | 4.5 |  |  | NA |  |  | NA |
Bank |  |  | 720,013 |  |  |  | 12.8 |  |  |  | 252,664 |  |  |  | 4.5 |  |  |  | 364,959 |  |  |  | 6.5 |
Tier 1 capital (to average assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 666,068 |  |  |  | 10.9 |  |  |  | 243,725 |  |  |  | 4.0 |  |  | NA |  |  | NA |
Bank |  |  | 720,013 |  |  |  | 12.0 |  |  |  | 240,460 |  |  |  | 4.0 |  |  |  | 300,575 |  |  |  | 5.0 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  | $ | 777,857 |  |  |  | 14.2 | % |  | $ | 439,031 |  |  |  | 8.0 | % |  |  | $ NA |  |  |  | NA% |
Bank |  |  | 759,146 |  |  |  | 13.9 |  |  |  | 435,793 |  |  |  | 8.0 |  |  |  | 544,741 |  |  |  | 10.0 |
Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 633,134 |  |  |  | 11.5 |  |  |  | 329,274 |  |  |  | 6.0 |  |  | NA |  |  | NA |
Bank |  |  | 703,737 |  |  |  | 12.9 |  |  |  | 326,845 |  |  |  | 6.0 |  |  |  | 435,793 |  |  |  | 8.0 |
Common equity tier 1 (to risk weighted assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 584,879 |  |  |  | 10.7 |  |  |  | 246,955 |  |  |  | 4.5 |  |  | NA |  |  | NA |
Bank |  |  | 703,737 |  |  |  | 12.9 |  |  |  | 245,134 |  |  |  | 4.5 |  |  |  | 354,082 |  |  |  | 6.5 |
Tier 1 capital (to average assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated |  |  | 633,134 |  |  |  | 10.6 |  |  |  | 238,934 |  |  |  | 4.0 |  |  | NA |  |  | NA |
Bank |  |  | 703,737 |  |  |  | 11.9 |  |  |  | 237,447 |  |  |  | 4.0 |  |  |  | 296,808 |  |  |  | 5.0 |

(Continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. REGULATORY MATTERS (Continued)

Our consolidated capital levels as of both June 30, 2025 and December 31, 2024 include $48.3 million of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009 were less than $15.0 billion. As of both June 30, 2025 and December 31, 2024, all $48.3 million of the trust preferred securities were included in our consolidated Tier 1 capital.

Under the final BASEL III capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement was phased in over three years beginning in 2016. The capital buffer requirement raised the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. We believe that, as of June 30, 2025, our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

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. On January 16, 2025, our Board of Directors declared a cash dividend on our common stock in the amount of $0.37 per share that was paid on March 19, 2025, to shareholders of record as of March 7, 2025. On April 17, 2025, our Board of Directors declared a cash dividend on our common stock in the amount of $0.37 per share that was paid on June 18, 2025, to shareholders of record as of June 6, 2025.

As of June 30, 2025, we had the ability to repurchase up to $6.8 million in common stock shares from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations as part of a $20.0 million common stock repurchase program announced in May 2021. No shares were repurchased during the first six months of 2025. Historically, stock repurchases have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank. The actual timing, number and value of shares repurchased will be determined by us in our discretion and will depend on a number of factors, including the stock price, capital position, financial performance, general market and economic conditions, alternative uses of capital and applicable legal requirements.

14. SUBSEQUENT EVENTS

On July 17, 2025, our Board of Directors declared a cash dividend on our common stock in the amount of $0.38 per share that will be paid on September 17, 2025, to shareholders of record as of September 5, 2025.

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

Under the terms of the agreement, each outstanding share of EFIN’s common stock will be converted into the right to receive $32.32 in cash and 0.7116 shares of Mercantile common stock, for an aggregate transaction value of approximately $95.8 million based upon the closing price of Mercantile's common stock of $48.75 on July 21, 2025.

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

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

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 our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “indicates,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and 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, our inability to successfully combine with Eastern Michigan Financial Corporation; adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and non-traditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches, and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the Covid-19 pandemic or similar public health threats, and measures implemented to combat them; and other risk factors, including those described in our annual report on Form 10-K for the year ended December 31, 2024. 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, including Mercantile Community Partners, LLC ("MCP") and Mercantile Bank (“our bank”) and its subsidiaries, including Mercantile Insurance Center, Inc. at June 30, 2025 and December 31, 2024 and the results of operations for the three and six months ended June 30, 2025 and 2024. 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

Accounting principles generally accepted in the United States of America (“GAAP”) are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. This 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 discussion of our significant accounting estimates, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2024 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

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Allowance for Credit Losses (“a llowance”): The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on historical credit loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Credit losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance, while recoveries of loans previously charged-off are added to the allowance.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from servicing each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

Goodwill: Accounting rules require us to determine the fair value of all the assets and liabilities of an acquired entity, and to record their fair value on the date of acquisition. We employ a variety of means in determining fair value, including the use of discounted cash flow analysis, market comparisons and projected future revenue streams. For those items for which we conclude that we have the appropriate expertise to determine fair value, we may choose to use our own calculation of fair value. In other cases, where the fair value is not readily determined, consultation with outside parties is used to determine fair value. Once valuations have been determined, the net difference between the price paid for the acquired entity and the fair value of the balance sheet is recorded as goodwill. Goodwill is assessed at least annually for impairment, with any such impairment recognized in the period identified. A more frequent assessment is performed if there are material changes in the market place or within the organizational structure.

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Financial Overview

We reported net income of $22.6 million, or $1.39 per diluted share, for the second quarter of 2025, compared with net income of $18.8 million, or $1.17 per diluted share, during the second quarter of 2024. Net income during the first six months of 2025 totaled $42.2 million, or $2.60 per diluted share, compared to $40.3 million, or $2.50 per diluted share, during the first six months of 2024. Growth in net income during both time frames reflected increased net interest income, lower provision expense and reduced federal income tax expense, which more than offset increased overhead costs. A higher level of noninterest income also contributed to the increase in net income during the second quarter of 2025.

Commercial loans increased $114 million during the first six months of 2025, providing for an annualized growth rate of about 6%. Commercial and industrial loans grew $88.1 million and multi-family and residential rental property loans increased $43.3 million, largely reflecting enhanced use of lines of credit and draws on multi-family construction loans, respectively. Non-owner occupied commercial real estate (“CRE”) loans grew $5.6 million while owner occupied CRE loans were down $23.7 million; both CRE loan segments were impacted by the full payoffs and partial paydowns of certain larger relationships largely stemming from sales of the underlying properties. Land development and construction loans expanded by $0.6 million. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 55.0% as of June 30, 2025, compared to 54.9% as of December 31, 2024. The commercial loan pipeline remains strong, and as of June 30, 2025, we had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase. We do anticipate several relatively large CRE-related loan payoffs that will negatively impact commercial loan growth during the remainder of 2025.

Residential mortgage loans decreased $28.2 million during the first six months of 2025, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio. Residential mortgage loan originations totaled $242 million during the first six months of 2025, of which about 80% were originated with the intent to sell.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling 0.21% of total loans as of June 30, 2025. Accruing loans past due 30 to 89 days remain very low, and we had no foreclosed properties at quarter end. Gross loan charge-offs totaled $0.1 million during the first six months of 2025, while recoveries of prior period loan charge-offs aggregated $0.3 million, providing for a net loan recovery of $0.2 million. We recorded provision expense of $3.7 million during the first six months of 2025, primarily reflecting increased allocations on specific financially stressed lending relationships, changes to the economic forecast and loan growth.

Interest-earning assets, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $230 million during the first six months of 2025, compared to $166 million during the first six months of 2024. The higher average balance primarily reflects our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth, as well as our desire to maintain higher levels of on balance sheet liquidity.

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Total deposits increased $12.1 million during the first six months of 2025. Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing and interest-bearing checking accounts primarily reflecting seasonal and customary customers' tax and bonus payments and partnership distributions. Securities sold under agreements to repurchase (“sweep accounts”) increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $30.9 million during the first six months of 2025. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Net interest income increased $2.4 million and $3.6 million during the second quarter and first six months of 2025, respectively, compared to the same prior-year time periods, reflecting the net impact of $3.1 million and $6.7 million increases in interest income and $0.7 million and $3.1 million increases in interest expense, during the respective periods. Our net interest margin declined 14 basis points and 19 basis points during the second quarter and first six months of 2025, respectively, compared to the same prior-year time periods. Our yield on earning assets declined 30 basis points during both the second quarter and first six months of 2025, and our cost of funds declined 16 basis points and 11 basis points during those respective time periods. The lower yield on earning assets largely reflected the aggregate 100 basis point reduction in the federal funds rate during the last four months of 2024. Despite the reduction in the net interest margin, net interest income increased primarily due to solid loan growth between the second quarters of 2024 and 2025. Total loans averaged $4.70 billion and $4.40 billion during the second quarters of 2025 and 2024, respectively, reflecting growth of $299 million, or about 7%.

Noninterest income totaled $11.5 million and $20.2 million during the second quarter and first six months of 2025, respectively, compared to $9.7 million and $20.5 million during the second quarter and first six months of 2024, respectively. We recorded increased service charges on accounts, primarily reflecting growth in treasury management activity, mortgage banking income, credit and debit card fees and payroll services income during both time periods. Interest rate swap income was higher during the second quarter of 2025 compared to the second quarter of 2024, but was lower during the first six months of 2025 compared to the first six months of 2024. Noninterest income during the first six months of 2024 was also enhanced from bank owned life insurance benefit claims and higher revenue associated with a private equity investment.

Noninterest expense totaled $33.4 million and $64.5 million during the second quarter and first six months of 2025, respectively, compared to $29.7 million and $59.7 million during the second quarter and first six months of 2024, respectively. The higher level of noninterest expense during both time periods primarily resulted from increased compensation and benefit costs along with higher data processing expenses.

Federal income tax expense totaled $3.3 million and $7.9 million during the second quarter and first six months of 2025, respectively, compared to $4.7 million and $10.2 million during the second quarter and first six months of 2024, respectively. The effective tax rate was 12.9% and 15.7% during the second quarter and first six months of 2025, respectively, compared to 20.1% during both the second quarter and first six months of 2024. The reduction during the 2025 periods compared to the respective 2024 periods reflects the acquisition of transferable energy tax credits during the second quarter of 2025, which provided for a $1.5 million reduction in federal income tax expense.

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MERCANTILE BANK CORPORATION

Financial Condition

Our total assets increased $129 million during the first six months of 2025, and totaled $6.18 billion as of June 30, 2025. Total loans grew $97.2 million, securities available for sale increased $96.1 million and other assets were up $22.1 million, while interest-earning assets declined $139 million during the first six months of 2025. Sweep accounts grew $121 million and total deposits increased $12.1 million, while FHLBI advances decreased $30.9 million during the first six months of 2025.

Commercial loans increased $114 million during the first six months of 2025, providing for an annualized growth rate of about 6%. Commercial and industrial loans grew $88.1 million and multi-family and residential rental property loans increased $43.3 million, largely reflecting enhanced use of lines of credit and draws on multi-family construction loans, respectively. Non-owner occupied CRE loans grew $5.6 million while owner occupied CRE loans were down $23.7 million; both CRE loan segments were impacted by the full payoffs and partial paydowns of certain larger relationships largely stemming from sales of the underlying properties. Land development and construction loans expanded by $0.6 million. As a percent of total commercial loans, commercial and industrial loans and owner occupied CRE loans combined equaled 55.0% as of June 30, 2025, compared to 54.9% as of December 31, 2024. Commercial loans totaled $3.82 billion, or 81.3% of total loans, as of June 30, 2025, compared to $3.71 billion, or 80.6% of total loans, as of December 31, 2024.

We had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase as of June 30, 2025, which we expect to be drawn over the next 12 to 18 months. Our current pipeline reports indicate approximately $165 million in new lending opportunities of which we expect a majority to be accepted and funded over the next 12 to 18 months. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit averaged about 45% during the first six months of 2025, compared to approximately 42% during all of 2024.

Residential mortgage loans totaled $799 million, or 17.0% of total loans, as of June 30, 2025. Residential mortgage loans decreased $28.2 million during the first six months of 2025, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio. Residential mortgage loan originations totaled $242 million during the first six months of 2025, of which about 80% were originated with the intent to sell.

Other consumer-related loans, primarily comprised of home equity lines of credit, totaled $77.4 million, or 1.7% of total loans, as of June 30, 2025, compared to $65.9 million, or 1.4% of total loans, as of December 31, 2024. We expect this loan portfolio segment to remain relatively stable in dollar amount but decline as a percentage of total loans in future periods as the commercial loan segment grows.

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Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions or other factors. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require modification in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on nonperforming loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming loans totaled $9.7 million, or 0.2% of total loans, as of June 30, 2025, compared to $5.7 million, or 0.1% of total loans, as of December 31, 2024. We had no loans past due 90 days or more and accruing interest or foreclosed properties as of June 30, 2025, or December 31, 2024. The volume of nonperforming loans has remained under 0.3% of total loans since year-end 2015. Given the low levels of nonperforming loans and accruing loans delinquent 30 to 89 days, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

Gross loan charge-offs totaled $0.1 million during the first six months of 2025, while recoveries of prior period loan charge-offs aggregated $0.3 million, providing for a net loan recovery of $0.2 million. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries. We recorded provision expense of $3.7 million during the first six months of 2025, primarily reflecting increased allocations on specific financially stressed lending relationships, changes to the economic forecast and loan growth.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential mortgage loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position.

See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance.

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The allowance equaled $58.4 million, or 1.24% of total loans and 599% of nonperforming loans, as of June 30, 2025. The allowance was comprised of $54.5 million in general reserves relating to performing loans and $3.9 million in specific reserves on other loans, primarily nonperforming loans, as of June 30, 2025. Loans with an aggregate carrying value of $0.4 million as of June 30, 2025 had been subject to previous partial charge-offs aggregating $4.1 million over the past several years. There were no specific reserves allocated to loans that had been subject to a previous partial charge-off as of June 30, 2025.

Although we believe the allowance is adequate to absorb loan losses in our loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance.

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the six months ended June 30, 2025.

(Dollars in thousands) |  | Allowance for Credit Losses |  |  | Total Loans |  |  | Allowance for Credit Losses to Total Loans |  |  | Nonaccrual Loans |  |  | Nonaccrual Loans to Total Loans |  |  | Allowance for Credit Losses to Nonaccrual Loans |  |  | Net Charge-Offs |  |  | Annualized Net Charge-Offs to Average Loans |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 11,771 |  |  | $ | 1,375,368 |  |  |  | 0.86 | % |  | $ | 1,727 |  |  |  | 0.13 | % |  |  | 681.59 | % |  | $ | (47 | ) |  |  | (0.01 | )%
Vacant land, land development and residential construction |  |  | 387 |  |  |  | 67,520 |  |  |  | 0.57 |  |  |  | 0 |  |  |  | 0 |  |  | NA |  |  |  | (2 | ) |  |  | (0.01 | )
Real estate – owner occupied |  |  | 7,691 |  |  |  | 725,106 |  |  |  | 1.06 |  |  |  | 0 |  |  |  | 0 |  |  | NA |  |  |  | (3 | ) |  |  | (0.00 | )
Real estate – non-owner occupied |  |  | 13,800 |  |  |  | 1,134,012 |  |  |  | 1.22 |  |  |  | 5,532 |  |  |  | 0.49 |  |  |  | 249.46 |  |  |  | 0 |  |  |  | 0.00 |
Real estate – multi-family and residential rental |  |  | 4,297 |  |  |  | 519,152 |  |  |  | 0.83 |  |  |  | 0 |  |  |  | 0 |  |  | NA |  |  |  | (8 | ) |  |  | (0.00 | )
Total commercial |  |  | 37,946 |  |  |  | 3,821,158 |  |  |  | 0.99 |  |  |  | 7,259 |  |  |  | 0.19 |  |  |  | 522.74 |  |  |  | (60 | ) |  |  | (0.00 | )
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family mortgages |  |  | 17,965 |  |  |  | 799,427 |  |  |  | 2.25 |  |  |  | 2,484 |  |  |  | 0.31 |  |  |  | 723.23 |  |  |  | (66 | ) |  |  | (0.02 | )
Other consumer |  |  | 2,321 |  |  |  | 77,434 |  |  |  | 3.00 |  |  |  | 0 |  |  |  | 0 |  |  | NA |  |  |  | (95 | ) |  |  | (0.27 | )
Total retail |  |  | 20,286 |  |  |  | 876,861 |  |  |  | 2.31 |  |  |  | 2,484 |  |  |  | 0.28 |  |  |  | 816.67 |  |  |  | (161 | ) |  |  | (0.04 | )
Unallocated |  |  | 143 |  |  |  | NA |  |  |  | NA |  |  |  | NA |  |  |  | NA |  |  |  | NA |  |  |  | NA |  |  |  | NA |
Total |  | $ | 58,375 |  |  | $ | 4,698,019 |  |  |  | 1.24 | % |  | $ | 9,743 |  |  |  | 0.21 | % |  |  | 599.15 | % |  | $ | (221 | ) |  |  | (0.01 | )%

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Securities available for sale increased $96.1 million during the first six months of 2025, totaling $826 million, or 13.4% of total assets, as of June 30, 2025. Purchases of U.S. Government agency bonds during the first six months of 2025 aggregated $91.7 million, while proceeds from maturities and calls totaled $18.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first six months of 2025, while proceeds from principal paydowns aggregated $1.8 million. Purchases of municipal bonds totaled $12.9 million during the first six months of 2025, while maturities totaled $8.4 million. As of June 30, 2025, the portfolio was primarily comprised of U.S. Government agency bonds (71%), municipal bonds (26%) and U.S. Government agency guaranteed mortgage-backed securities (3%). All of our securities are currently designated as available for sale, and are therefore stated at fair value. The fair value of securities designated as available for sale as of June 30, 2025 totaled $826 million, including a net unrealized loss of $45.3 million. The net unrealized loss equaled $63.1 million as of December 31, 2024. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect any upcoming purchases to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at about 13% to 16% of total assets.

Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third-party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines.

FHLBI stock totaled $21.5 million as of June 30, 2025, unchanged from December 31, 2024. Our investment in FHLBI stock is necessary to engage in the FHLBI’s advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

Interest-earning assets, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, averaged $230 million during the first six months of 2025, compared to $166 million during the first six months of 2024. The higher average balance primarily reflects our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth, as well as our desire to maintain higher levels of on balance sheet liquidity.

Net premises and equipment equaled $54.8 million as of June 30, 2025, compared to $53.4 million as of December 31, 2024. Depreciation expense totaled $2.5 million during the first six months of 2025, while investments associated with renovations of existing facilities and equipment purchases aggregated $3.9 million.

Other assets totaled $170 million as of June 30, 2025, compared to $148 million as of December 31, 2024. The increase during the period was primarily attributable to an increase of $13.5 million in Low-Income Housing Tax Credit and Historic Tax Credit entity investments and an increase of $9.4 million in federal income tax receivable generated from our investments in transferable energy tax credits.

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Total deposits increased $12.1 million during the first six months of 2025. Aggregate net growth in almost all interest-bearing deposit types offset a significant portion of the reduction in business noninterest-bearing and interest-bearing checking accounts primarily reflecting seasonal and customary customers' tax and bonus payments and partnership distributions. Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. FHLBI advances declined $30.9 million during the first six months of 2025. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Uninsured deposits totaled approximately $2.4 billion, or about 52% of total deposits, as of June 30, 2025, compared to approximately $2.2 billion, or 46% of total deposits, as of December 31, 2024. The uninsured amounts are estimates based on the methodologies and assumptions we use for regulatory reporting requirements.

Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. In addition, the aggregate balance of sweep accounts is subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that many of the customers maintain. The average balance of sweep accounts equaled $232 million during the first six months of 2025, with a high daily balance of $286 million and a low daily balance of $115 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

FHLBI advances declined $30.9 million during the first six months of 2025, totaling $356 million as of June 30, 2025. New bullet advances totaled $20.0 million, while bullet advance maturities aggregated $50.0 million during the first six months of 2025. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI 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 totaled $1.06 billion, with remaining availability based on collateral equaling $698 million, as of June 30, 2025.

Shareholders’ equity increased $47.0 million during the first six months of 2025, equaling $632 million as of June 30, 2025. Positively impacting shareholders’ equity during the first six months of 2025 was net income of $42.2 million, which was partially offset by the payment of cash dividends totaling $11.8 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.6 million. A $14.1 million after-tax increase in the market value of our available for sale securities portfolio, reflecting a decline in market interest rates, positively impacted shareholders’ equity during the first six months of 2025.

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Liquidity

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured and called securities, federal funds sold and interest-earning deposits. 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.

To assist in providing needed funds and managing interest rate risk, we periodically obtain monies from wholesale funding sources. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $555 million, or about 10% of total funds, as of June 30, 2025, compared to $537 million, or about 10% of total funds, as of December 31, 2024.

Sweep accounts increased $121 million during the first six months of 2025, largely reflecting the return of funds that had been withdrawn during the fourth quarter of 2024. In addition, the aggregate balance of sweep accounts is subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that many of the customers maintain. The average balance of sweep accounts equaled $232 million during the first six months of 2025, with a high daily balance of $286 million and a low daily balance of $115 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings.

Information regarding our repurchase agreements as of June 30, 2025 and during the first six months of 2025 is as follows:

(Dollars in thousands) |  |  |  |
Outstanding balance at June 30, 2025 |  | $ | 242,785 |
Weighted average interest rate at June 30, 2025 |  |  | 3.17 | %
Maximum daily balance six months ended June 30, 2025 |  | $ | 285,549 |
Average daily balance for six months ended June 30, 2025 |  | $ | 231,926 |
Weighted average interest rate for six months ended June 30, 2025 |  |  | 3.20 | %

FHLBI advances declined $30.9 million during the first six months of 2025, totaling $356 million as of June 30, 2025. New bullet advances totaled $20.0 million, while bullet advance maturities aggregated $50.0 million during the first six months of 2025. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI 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 totaled $1.06 billion, with remaining availability based on collateral equaling $698 million, as of June 30, 2025.

We also have the ability to borrow up to an aggregate $70.0 million on a daily basis through correspondent banks using established unsecured federal funds purchased lines of credit. We had limited activity on these lines of credit during the first six months of 2025. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $208 million during the first six months of 2025. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $153 million as of June 30, 2025. We did not utilize this line of credit during the first six months of 2025 or at any time during the previous 16 fiscal years, and do not plan to access this line of credit in future periods.

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The following table reflects, as of June 30, 2025, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

|  | One Year |  |  | One to |  |  | Three to |  |  | Over |  |  |  |  |
(Dollars in thousands) |  | or Less |  |  | Three Years |  |  | Five Years |  |  | Five Years |  |  | Total |
Deposits without a stated maturity |  | $ | 3,702,098 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 3,702,098 |
Time deposits |  |  | 921,996 |  |  |  | 76,860 |  |  |  | 9,518 |  |  |  | 0 |  |  |  | 1,008,374 |
Short-term borrowings |  |  | 242,785 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 242,785 |
Federal Home Loan Bank advances |  |  | 90,899 |  |  |  | 181,917 |  |  |  | 62,087 |  |  |  | 21,318 |  |  |  | 356,221 |
Subordinated debentures |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 50,672 |  |  |  | 50,672 |
Subordinated notes |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 89,486 |  |  |  | 89,486 |
Other borrowed money |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 1,520 |  |  |  | 1,520 |
Premises and equipment leases |  |  | 1,177 |  |  |  | 2,154 |  |  |  | 1,178 |  |  |  | 1,173 |  |  |  | 5,682 |

The balance of certificates of deposit exceeding the FDIC insured limit and their maturity profile as of June 30, 2025 and December 31, 2024 were as follows:

(Dollars in thousands) |  | June 30, 2025 |  |  | December 31, 2024 |
Up to three months |  | $ | 148,785 |  |  | $ | 101,062 |
Three months to six months |  |  | 89,460 |  |  |  | 66,314 |
Six months to twelve months |  |  | 94,674 |  |  |  | 161,409 |
Over twelve months |  |  | 22,958 |  |  |  | 20,476 |
Total certificates of deposit |  | $ | 355,877 |  |  | $ | 349,261 |

In addition to normal 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 June 30, 2025, we had a total of $1.99 billion in unfunded loan commitments and $26.4 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $1.83 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $165 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels and include such data in our overall liquidity management.

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. We have developed contingency funding plans that provide a framework for meeting liquidity disruptions.

Capital Resources

Shareholders’ equity increased $47.0 million during the first six months of 2025, equaling $632 million as of June 30, 2025. Positively impacting shareholders’ equity during the first six months of 2025 was net income of $42.2 million, which was partially offset by the payment of cash dividends totaling $11.8 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.6 million. A $14.1 million after-tax increase in the market value of our available for sale securities portfolio, reflecting a decline in market interest rates, positively impacted shareholders’ equity during the first six months of 2025.

We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. As of June 30, 2025, our bank’s total risk-based capital ratio was 13.9%, unchanged from December 31, 2024. Our bank’s total regulatory capital increased $20.1 million during the first six months of 2025, in large part reflecting net income totaling $47.5 million, which was partially offset by cash dividends paid to us aggregating $31.2 million. As of June 30, 2025, our bank’s total regulatory capital equaled $779 million, or $218 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of June 30, 2025 and December 31, 2024 are disclosed in Note 13 of the Notes to Consolidated Financial Statements.

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Results of Operations

We recorded net income of $22.6 million, or $1.39 per basic and diluted share, for the second quarter of 2025, compared with net income of $18.8 million, or $1.17 per basic and diluted share, for the second quarter of 2024. We recorded net income of $42.2 million, or $2.60 per basic and diluted share, for the first six months of 2025, compared with net income of $40.3 million, or $2.50 per basic and diluted share, for the first six months of 2024. Diluted earnings per share increased $0.22, or 18.8%, during the second quarter of 2025, and $0.10, or 4.0%, during the first six months of 2025, compared with the respective prior-year periods.

The increases in net income during the 2025 periods compared to the respective 2024 periods primarily reflected growth in net interest income, reduced federal income tax expense, and lower provision expense, which more than offset higher noninterest expense. A higher level of noninterest income, mainly reflecting growth in mortgage banking income, interest rate swap income, treasury management fees, and payroll service fees, also contributed to the increase in net income during the second quarter of 2025. Net interest income increased as earning asset expansion and a decrease in the cost of funds outweighed a lower yield on earning assets and growth in interest-bearing liabilities. The decreases in federal income tax expense primarily resulted from the recognition of tax benefits stemming from the acquisition of transferable energy tax credits during the second quarter of 2025. The provision expense recorded during the 2025 periods mainly reflected a net increase in individual allocations driven by a commercial construction loan that was placed on nonaccrual during the second quarter and allocations necessitated by loan growth; the net impact of changes to the economic forecast also contributed to the provision expense recorded during the first six months of 2025. Noninterest expense increased during the 2025 periods primarily due to higher levels of salary and benefit and data processing costs and allocations to the reserve for unfunded loan commitments.

Interest income during the second quarter of 2025 was $82.0 million, an increase of $3.1 million, or 3.9%, from the $78.9 million earned during the second quarter of 2024. The increase resulted from growth in average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $5.71 billion during the second quarter of 2025, up $494 million, or 9.5%, from the level of $5.22 billion during the prior-year second quarter; average loans were up $299 million, average securities increased $184 million, and average interest-earning assets grew $11.0 million. The yield on average earning assets was 5.77% during the current-year second quarter, a decrease from 6.07% during the respective 2024 period. The lower yield mainly resulted from a decreased yield on loans and a change in earning asset mix, which more than offset an enhanced yield on securities stemming from reinvestment and portfolio expansion activities in a higher interest rate environment. The yield on loans was 6.32% during the second quarter of 2025, down from 6.64% during the second quarter of 2024 primarily due to lower interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) lowering the targeted federal funds rate. The FOMC decreased the targeted federal funds rate by 50 basis points in September of 2024 and 25 basis points in each of November and December of 2024, during which time average variable-rate commercial loans represented approximately 73% of average total commercial loans. Reflecting the success of a strategic initiative to reduce the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans represented a decreased percentage of earning assets and lower-yielding securities accounted for an increased percentage of earning assets in the second quarter of 2025 compared to the second quarter of 2024. The yield on securities equaled 2.97% during the second quarter of 2025, up from 2.30% during the prior-year second quarter.

Interest income during the first six months of 2025 was $162 million, an increase of $6.7 million, or 4.3%, from the $156 million earned during the first six months of 2024. The increase resulted from a higher level of average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $5.70 billion during the first six months of 2025, up $546 million, or 10.6%, from the level of $5.15 billion during the respective 2024 period; average loans increased $315 million, average securities grew $167 million, and average interest-earning assets were up $63.6 million. The yield on average earning assets was 5.76% during the first six months of 2025, a decline from 6.06% during the first six months of 2024. The decreased yield mainly resulted from a lower yield on loans and a change in earning asset mix, which more than offset an improved yield on securities reflecting reinvestment and portfolio expansion activities in a higher interest rate environment. The yield on loans was 6.31% during the first six months of 2025, down from 6.65% during the respective prior-year period largely due to reduced interest rates on variable-rate commercial loans stemming from the aforementioned FOMC interest rate cuts. Higher-yielding loans accounted for a decreased percentage of earning assets and lower-yielding securities and other interest-earning assets represented increased percentages of earning assets in the first six months of 2025 compared to the first six months of 2024. The yield on securities equaled 2.93% during the first six months of 2025, up from 2.25% during the respective 2024 period.

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Interest expense during the second quarter of 2025 was $32.5 million, an increase of $0.7 million, or 2.1%, from the $31.8 million expensed during the second quarter of 2024. The higher level of interest expense resulted from growth in average interest-bearing liabilities, which more than offset a decline in the weighted average cost of these funds. Average interest-bearing liabilities totaled $4.21 billion during the second quarter of 2025, compared to $3.76 billion during the prior-year second quarter, representing an increase of $455 million, or 12.1%. The weighted average cost of interest-bearing liabilities declined from 3.40% during the second quarter of 2024 to 3.09% during the second quarter of 2025 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment that began in September of 2024 in conjunction with the FOMC’s lowering of the targeted federal funds rate. A change in funding mix, primarily consisting of decreases in average noninterest-bearing checking accounts and lower-cost non-time deposits and increases in average higher-cost money market accounts and time deposits as a percentage of total funding sources, negatively impacted the weighted average cost of interest-bearing liabilities during the second quarter of 2025. The increases in money market accounts and time deposits reflected new deposit relationships, growth in existing deposit relationships, and deposit migration.

Interest expense during the first six months of 2025 was $64.3 million, an increase of $3.1 million, or 5.1%, from the $61.2 million expensed during the first six months of 2024. The increased interest expense reflected growth in average interest-bearing liabilities, which more than offset a reduction in the weighted average cost of these funds. Average interest-bearing liabilities totaled $4.20 billion during the first six months of 2025, compared to $3.68 billion during the respective 2024 period, representing an increase of $515 million, or 14.0%. The weighted average cost of interest-bearing liabilities decreased from 3.33% during the first six months of 2024 to 3.09% during the first six months of 2025 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment starting in September of 2024 and coinciding with the FOMC’s lowering of the targeted federal funds rate. Increases in average higher-cost money market accounts and time deposits as a percentage of total funding sources negatively impacted the cost of funds during the first six months of 2025.

Net interest income during the second quarter of 2025 was $49.5 million, an increase of $2.4 million, or 5.1%, from the $47.1 million earned during the respective 2024 period. The increase reflected growth in earning assets, which more than offset a lower net interest margin. The net interest margin was 3.49% in the current-year second quarter, down from 3.63% in the second quarter of 2024 due to a decreased yield on average earning assets, which more than offset a decline in the cost of funds. The lower yield on average earning assets mainly resulted from a decreased yield on commercial loans, largely reflecting the impact of the previously mentioned FOMC rate cuts. The cost of funds equaled 2.28% in the second quarter of 2025, down from 2.44% in the prior-year second quarter primarily due to lower costs of money market accounts and time deposits, reflecting the decreasing interest rate environment over the last four months of 2024.

Net interest income during the first six months of 2025 was $98.0 million, an increase of $3.6 million, or 3.8%, from the $94.4 million earned during the respective 2024 period. The increase reflected earning asset expansion, which more than offset a decreased net interest margin. The net interest margin was 3.49% in the first six months of 2025, down from 3.68% in the first six months of 2024 due to a lower yield on earning assets, which outweighed a decreased cost of funds. The reduced yield on average earning assets primarily reflected a decreased yield on commercial loans, in large part stemming from the aforementioned FOMC rate cuts. The cost of funds equaled 2.27% in the first six months of 2025, down from 2.38% in the respective 2024 period mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreasing interest rate environment during the last four months of 2024.

The following tables set forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflect the average yield on assets and average cost of liabilities for the second quarters and first six months of 2025 and 2024. 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 for the second quarters and first six months of 2025 and 2024 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $255,000 and $60,000 in the second quarters of 2025 and 2024, respectively, and $510,000 and $120,000 in the first six months of 2025 and 2024, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of approximately two basis points for each of the 2025 periods and less than one basis point for each of the 2024 periods.

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|  | Quarters ended June 30, |
|  | 2025 |  |  | 2024 |
|  | Average |  |  |  |  |  |  | Average |  |  | Average |  |  |  |  |  |  | Average |
|  | Balance |  |  | Interest |  |  | Rate |  |  | Balance |  |  | Interest |  |  | Rate |
|  | (dollars in thousands) |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 4,695,367 |  |  | $ | 73,962 |  |  |  | 6.32 | % |  | $ | 4,396,475 |  |  | $ | 72,819 |  |  |  | 6.64 | %
Investment securities |  |  | 824,777 |  |  |  | 6,115 |  |  |  | 2.97 |  |  |  | 640,627 |  |  |  | 3,684 |  |  |  | 2.30 |
Interest-earning assets |  |  | 193,637 |  |  |  | 2,136 |  |  |  | 4.36 |  |  |  | 182,636 |  |  |  | 2,436 |  |  |  | 5.28 |
Total interest - earning assets |  |  | 5,713,781 |  |  |  | 82,213 |  |  |  | 5.77 |  |  |  | 5,219,738 |  |  |  | 78,939 |  |  |  | 6.07 |
Allowance for credit losses |  |  | (57,801 | ) |  |  |  |  |  |  |  |  |  |  | (53,163 | ) |  |  |  |  |  |  |  |
Other assets |  |  | 405,839 |  |  |  |  |  |  |  |  |  |  |  | 366,687 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 6,061,819 |  |  |  |  |  |  |  |  |  |  | $ | 5,533,262 |  |  |  |  |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  | $ | 3,463,067 |  |  | $ | 25,725 |  |  |  | 2.98 | % |  | $ | 2,957,011 |  |  | $ | 24,710 |  |  |  | 3.35 | %
Short-term borrowings |  |  | 242,605 |  |  |  | 1,919 |  |  |  | 3.17 |  |  |  | 225,607 |  |  |  | 1,757 |  |  |  | 3.12 |
Federal Home Loan Bank advances |  |  | 365,672 |  |  |  | 2,897 |  |  |  | 3.13 |  |  |  | 434,776 |  |  |  | 3,252 |  |  |  | 2.96 |
Other borrowings |  |  | 141,534 |  |  |  | 1,938 |  |  |  | 5.42 |  |  |  | 140,194 |  |  |  | 2,088 |  |  |  | 5.89 |
Total interest-bearing liabilities |  |  | 4,212,878 |  |  |  | 32,479 |  |  |  | 3.09 |  |  |  | 3,757,588 |  |  |  | 31,807 |  |  |  | 3.40 |
Noninterest-bearing deposits |  |  | 1,152,631 |  |  |  |  |  |  |  |  |  |  |  | 1,139,887 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 80,081 |  |  |  |  |  |  |  |  |  |  |  | 94,919 |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  | 616,229 |  |  |  |  |  |  |  |  |  |  |  | 540,868 |  |  |  |  |  |  |  |  |
Total liabilities and shareholders’ equity |  | $ | 6,061,819 |  |  |  |  |  |  |  |  |  |  | $ | 5,533,262 |  |  |  |  |  |  |  |  |
Net interest income |  |  |  |  |  | $ | 49,734 |  |  |  |  |  |  |  |  |  |  | $ | 47,132 |  |  |  |  |
Net interest rate spread |  |  |  |  |  |  |  |  |  |  | 2.68 | % |  |  |  |  |  |  |  |  |  |  | 2.67 | %
Net interest spread on average assets |  |  |  |  |  |  |  |  |  |  | 3.29 | % |  |  |  |  |  |  |  |  |  |  | 3.41 | %
Net interest margin on earning assets |  |  |  |  |  |  |  |  |  |  | 3.49 | % |  |  |  |  |  |  |  |  |  |  | 3.63 | %

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|  | Six months ended June 30, |
|  | 2025 |  |  | 2024 |
|  | Average |  |  |  |  |  |  | Average |  |  | Average |  |  |  |  |  |  | Average |
|  | Balance |  |  | Interest |  |  | Rate |  |  | Balance |  |  | Interest |  |  | Rate |
|  | (dollars in thousands) |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 4,662,415 |  |  | $ | 145,954 |  |  |  | 6.31 | % |  | $ | 4,347,819 |  |  | $ | 144,089 |  |  |  | 6.65 | %
Investment securities |  |  | 804,804 |  |  |  | 11,782 |  |  |  | 2.93 |  |  |  | 637,363 |  |  |  | 7,166 |  |  |  | 2.25 |
Interest-earning assets |  |  | 230,051 |  |  |  | 5,071 |  |  |  | 4.38 |  |  |  | 166,435 |  |  |  | 4,469 |  |  |  | 5.31 |
Total interest - earning assets |  |  | 5,697,270 |  |  |  | 162,807 |  |  |  | 5.76 |  |  |  | 5,151,617 |  |  |  | 155,724 |  |  |  | 6.06 |
Allowance for credit losses |  |  | (56,735 | ) |  |  |  |  |  |  |  |  |  |  | (52,104 | ) |  |  |  |  |  |  |  |
Other assets |  |  | 399,574 |  |  |  |  |  |  |  |  |  |  |  | 359,456 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 6,040,109 |  |  |  |  |  |  |  |  |  |  | $ | 5,458,969 |  |  |  |  |  |  |  |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  | $ | 3,452,840 |  |  | $ | 50,918 |  |  |  | 2.97 | % |  | $ | 2,873,659 |  |  | $ | 46,934 |  |  |  | 3.28 | %
Short-term borrowings |  |  | 232,005 |  |  |  | 3,682 |  |  |  | 3.20 |  |  |  | 221,141 |  |  |  | 3,412 |  |  |  | 3.09 |
Federal Home Loan Bank advances |  |  | 370,912 |  |  |  | 5,795 |  |  |  | 3.11 |  |  |  | 447,513 |  |  |  | 6,651 |  |  |  | 2.94 |
Other borrowings |  |  | 141,333 |  |  |  | 3,875 |  |  |  | 5.45 |  |  |  | 140,059 |  |  |  | 4,173 |  |  |  | 5.89 |
Total interest-bearing liabilities |  |  | 4,197,090 |  |  |  | 64,270 |  |  |  | 3.09 |  |  |  | 3,682,372 |  |  |  | 61,170 |  |  |  | 3.33 |
Noninterest-bearing deposits |  |  | 1,149,359 |  |  |  |  |  |  |  |  |  |  |  | 1,157,886 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 88,412 |  |  |  |  |  |  |  |  |  |  |  | 84,687 |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  | 605,248 |  |  |  |  |  |  |  |  |  |  |  | 534,024 |  |  |  |  |  |  |  |  |
Total liabilities and shareholders’ equity |  | $ | 6,040,109 |  |  |  |  |  |  |  |  |  |  | $ | 5,458,969 |  |  |  |  |  |  |  |  |
Net interest income |  |  |  |  |  | $ | 98,537 |  |  |  |  |  |  |  |  |  |  | $ | 94,554 |  |  |  |  |
Net interest rate spread |  |  |  |  |  |  |  |  |  |  | 2.67 | % |  |  |  |  |  |  |  |  |  |  | 2.73 | %
Net interest spread on average assets |  |  |  |  |  |  |  |  |  |  | 3.29 | % |  |  |  |  |  |  |  |  |  |  | 3.47 | %
Net interest margin on earning assets |  |  |  |  |  |  |  |  |  |  | 3.49 | % |  |  |  |  |  |  |  |  |  |  | 3.68 | %

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Provisions for credit losses of $1.6 million and $3.5 million were recorded during the second quarters of 2025 and 2024, respectively, and $3.7 million and $4.8 million during the first six months of 2025 and 2024, respectively. The provision expense recorded during the second quarter of 2025 mainly reflected an individual allocation of $2.5 million associated with a commercial construction loan relationship that was placed on nonaccrual during the quarter and allocations of $0.7 million necessitated by net loan growth, which more than offset an aggregate reduction of $1.0 million in individual allocations related to nonperforming loan relationships resulting from full payoffs and partial paydowns. The provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations driven by the aforementioned commercial construction loan that was placed on nonaccrual during the second quarter, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. The provision expense recorded during the second quarter of 2024 primarily reflected an individual allocation for a nonperforming nonreal-estate-related commercial loan relationship and allocations necessitated by net loan growth, while the provision expense recorded during the first six months of 2024 mainly reflected the aforementioned individual allocation, an individual allocation for a different nonperforming nonreal-estate-related commercial loan relationship during the first quarter, and allocations required by net loan growth. Ongoing strong loan quality metrics, including low levels of loan charge-offs, during the 2025 and 2024 periods largely mitigated additional reserves associated with the previously mentioned factors.

Noninterest income totaled $11.5 million during the second quarter of 2025, up $1.8 million, or 18.4%, from $9.7 million during the respective 2024 period. The increase primarily stemmed from growth in mortgage banking income, interest rate swap income, treasury management fees, bank owned life insurance income, and payroll service fees, along with the recognition of tax credit syndication fees, which more than offset a decrease in revenue generated from investments in private equity funds. The higher level of mortgage banking income mainly resulted from increases in the percentage of loans originated with the intent to sell, which equaled approximately 79% during the current-year second quarter compared to approximately 75% during the second quarter of 2024, and total loan originations, which were up approximately 16% during the second quarter of 2025 compared to the corresponding 2024 period. Interest rate swap income can vary greatly from period to period due to the timing of closing transactions. The increases in treasury management and payroll service fees primarily reflected clients’ expanded use of products and services and successful marketing efforts. Noninterest income during the second quarter of 2024 included gains on the sales of other real estate owned totaling $0.3 million.

Noninterest income totaled $20.2 million during the first six months of 2025, compared to $20.5 million during the first six months of 2024. Noninterest income during the first six months of 2024 included bank owned life insurance death benefit claims and gains on the sales of other real estate owned totaling $0.7 million and $0.4 million, respectively. Excluding these transactions, noninterest income increased $0.7 million, or 3.8%, in the first six months of 2025 compared to the respective 2024 period. The growth mainly reflected higher levels of mortgage banking income, mainly stemming from increases in the percentage of loans originated with the intent to sell and total loan production, and treasury management and payroll service fees, in large part reflecting customers’ increased use of products and services and new client acquisition, along with the recording of tax credit syndication fees, which more than offset declines in revenue generated from investments in private equity funds and interest rate swap income. The percentage of mortgage loans originated with the intent to sell increased from approximately 74% during the first six months of 2024 to approximately 80% during the first six months of 2025, and total mortgage loan originations were up nearly 20% during the respective periods.

Noninterest expense totaled $33.4 million during the second quarter of 2025, up from $29.7 million during the prior-year second quarter. Noninterest expense totaled $64.5 million during the first six months of 2025, compared to $59.7 million during the first six months of 2024. The increases primarily resulted from higher salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, larger bonus accruals, lower residential mortgage loan deferred salary costs, higher health insurance claims, and increased payroll taxes. Higher allocations to the reserve for unfunded loan commitments, largely stemming from an increase in commercial loan commitments, and data processing costs, primarily reflecting increased software support costs, also contributed to the rises in noninterest expense. Lower depreciation expense, mainly reflecting facility expansion and leasehold improvement projects becoming fully depreciated during 2024, positively impacted noninterest expense during both 2025 periods. Noninterest expense during the first six months of 2024 included contributions to The Mercantile Bank Foundation totaling $0.7 million.

During the second quarter of 2025, we recorded income before federal income tax of $26.0 million and a federal income tax expense of $3.3 million. During the second quarter of 2024, we recorded income before federal income tax of $23.5 million and a federal income tax expense of $4.7 million. During the first six months of 2025, we recorded income before federal income tax of $50.0 million and a federal income tax expense of $7.8 million. During the first six months of 2024, we recorded income before federal income tax of $50.5 million and a federal income tax expense of $10.2 million. The decreases in federal income tax expense during the 2025 periods primarily reflected the acquisition of transferable energy tax credits during the second quarter, which provided for an aggregate $1.5 million tax benefit. The recording of the tax benefit positively impacted our effective tax rate, which equaled 12.9% and 15.7% in the second quarter and first six months of 2025, respectively, compared to 20.1% in the respective 2024 periods. The previously mentioned bank owned life insurance death benefit claims, substantially all of which were nontaxable, positively impacted the effective tax rate in the first six months of 2024.

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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 is 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.

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 control procedures 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.

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The following table depicts our GAP position as of June 30, 2025:

|  | Within |  |  | Three to |  |  | One to |  |  | After |  |  |  |  |
|  | Three |  |  | Twelve |  |  | Five |  |  | Five |  |  |  |  |
(Dollars in thousands) |  | Months |  |  | Months |  |  | Years |  |  | Years |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans (1) |  | $ | 3,037,982 |  |  | $ | 176,506 |  |  | $ | 1,048,767 |  |  | $ | 434,764 |  |  | $ | 4,698,019 |
Securities available for sale (2) |  |  | 37,008 |  |  |  | 49,541 |  |  |  | 370,793 |  |  |  | 390,586 |  |  |  | 847,928 |
Interest-earning assets |  |  | 192,165 |  |  |  | 1,257 |  |  |  | 3,750 |  |  |  | 0 |  |  |  | 197,172 |
Mortgage loans held for sale |  |  | 27,569 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 27,569 |
Allowance for credit losses |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (58,375 | )
Other assets |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 468,675 |
Total assets |  | $ | 3,294,724 |  |  | $ | 227,304 |  |  | $ | 1,423,310 |  |  | $ | 825,350 |  |  | $ | 6,180,988 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  |  | 2,829,811 |  |  |  | 613,482 |  |  |  | 86,378 |  |  |  | 0 |  |  |  | 3,529,671 |
Short-term borrowings |  |  | 242,785 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 242,785 |
Federal Home Loan Bank advances |  |  | 10,000 |  |  |  | 70,899 |  |  |  | 254,004 |  |  |  | 21,318 |  |  |  | 356,221 |
Other borrowed money |  |  | 52,192 |  |  |  | 0 |  |  |  | 89,486 |  |  |  | 0 |  |  |  | 141,678 |
Noninterest-bearing checking |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 1,180,801 |
Other liabilities |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 98,313 |
Total liabilities |  |  | 3,134,788 |  |  |  | 684,381 |  |  |  | 429,868 |  |  |  | 21,318 |  |  |  | 5,549,469 |
Shareholders' equity |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 631,519 |
Total liabilities & shareholders' equity |  | $ | 3,134,788 |  |  | $ | 684,381 |  |  | $ | 429,868 |  |  | $ | 21,318 |  |  | $ | 6,180,988 |
Net asset (liability) GAP |  | $ | 159,936 |  |  | $ | (457,077 | ) |  | $ | 993,442 |  |  | $ | 804,032 |  |  |  |  |
Cumulative GAP |  | $ | 159,936 |  |  | $ | (297,141 | ) |  | $ | 696,301 |  |  | $ | 1,500,333 |  |  |  |  |
Percent of cumulative GAP to total assets |  |  | 2.6 | % |  |  | (4.8 | )% |  |  | 11.3 | % |  |  | 24.3 | % |  |  |  |

(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 repricing frequency.
(2) | Mortgage-backed securities are categorized by expected maturities based upon prepayment trends as of June 30, 2025.

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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, it 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 our strategies, among other factors.

We conducted multiple simulations as of June 30, 2025, in which it was assumed that changes in market interest rates occurred ranging from up 300 basis points to down 400 basis points in equal quarterly instalments over the next twelve months. The following table reflects the suggested dollar and percentage changes in net interest income over the next twelve months in comparison to the $226 million in net interest income projected using our balance sheet amounts and anticipated replacement rates as of June 30, 2025. The resulting estimates are generally within our policy parameters established to manage and monitor interest rate risk.

(Dollars in thousands) |  | Dollar Change |  |  | Percent Change |
|  | In Net |  |  | In Net |
Interest Rate Scenario |  | Interest Income |  |  | Interest Income |
Interest rates down 400 basis points |  | $ | (29,500 | ) |  |  | (13.1 | )%
Interest rates down 300 basis points |  |  | (19,100 | ) |  |  | (8.5 | )
Interest rates down 200 basis points |  |  | (15,000 | ) |  |  | (6.6 | )
Interest rates down 100 basis points |  |  | (6,600 | ) |  |  | (2.9 | )
Interest rates up 100 basis points |  |  | 6,200 |  |  |  | 2.7 |
Interest rates up 200 basis points |  |  | 12,800 |  |  |  | 5.7 |
Interest rates up 300 basis points |  |  | 19,000 |  |  |  | 8.4 |

The resulting estimates have been significantly impacted by the current interest rate and economic environments, as adjustments have been made to critical model inputs with regards to traditional interest rate relationships. This is especially important as it relates to floating rate commercial loans, which comprise a sizable portion of our balance sheet.

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; level of nonperforming assets; 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 June 30, 2025, 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 June 30, 2025.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 1A. Risk Factors.

When evaluating the risk of an investment in our common stock, potential investors should carefully consider the risk factors appearing in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2024.

On July 22, 2025, we announced that Mercantile Bank Corporation ("Mercantile") had entered into a definitive merger agreement (“Merger Agreement”) with Eastern Michigan Financial Corporation (“Eastern”) pursuant to which Mercantile will acquire Eastern in a stock and cash transaction (the “Merger”). The following represents material changes in our risk factors from the risk factors set forth in our Annual Report on Form 10-K.

The Merger may not be consummated, which could have an adverse impact on our business and on the value of our common stock.

We expect the Merger to close during the fourth quarter of 2025, but the Merger is subject to a number of closing conditions. Satisfaction of many of these conditions is beyond our control. If these conditions are not satisfied or waived, the Merger will not be completed. Certain of the conditions that remain to be satisfied include, but are not limited to:

| ● | the continued accuracy of the representations and warranties made by the parties in the Merger Agreement;

| ● | the approval by Eastern shareholders of the Merger Agreement and the Merger;

| ● | the performance by each party of its respective obligations under the Merger Agreement;

| ● | the receipt of required regulatory approvals, including the approval of the Federal Reserve and the Michigan Department of Insurance and Financial Services;

| ● | the absence of any injunction, order, or decree restraining, enjoining or otherwise prohibiting the Merger; and

| ● | the absence of any material adverse change in the financial condition, business or results of operations of Eastern and Mercantile.

Additionally, we may become subject to litigation related to the Merger. As a result, the Merger may not close as scheduled, or at all.

Either Eastern or Mercantile may terminate the Merger Agreement under certain circumstances. Failure to complete the Merger or any delays in completing the Merger on the terms and timing we expect could have an adverse impact on our future business, operations and results of operations including, but not limited to:

| ● | having to pay certain significant transaction costs without realizing any of the anticipated benefits of completing the Merger;

| ● | failing to pursue other beneficial opportunities due to the focus of our management on the Merger, without realizing any of the anticipated benefits of completing the Merger; and

| ● | declines in our share price to the extent that the current market prices reflect an assumption by the market that the Merger will be completed.

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The Merger may be more difficult, costly or time consuming than expected, and we may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend on, among other things, our ability to integrate Eastern into our business in a manner that facilitates growth opportunities and achieves the anticipated benefits of the Merger. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be less than anticipated, and integration may result in additional unforeseen expenses.

There is a significant degree of difficulty inherent in the process of integrating an acquisition, including challenges consolidating certain operations and functions (including regulatory functions), integrating technologies, organizations, procedures, policies and operations, addressing differences in the business cultures of Mercantile and Eastern and retaining key personnel. The integration will be complex and time consuming and may involve delays or additional and unforeseen expenses. The integration process and other disruptions resulting from the Merger may also disrupt our ongoing business. Any failure to successfully or cost-effectively integrate Eastern following the closing of the Merger as well as any delays encountered in the integration process, could have an adverse effect on the revenues, levels of expenses and operating results of the combined company following the completion of the Merger, which may adversely affect the value of the common stock of the combined company following the completion of the Merger.

Mercantile and Eastern will be subject to various uncertainties while the Merger is pending that could adversely affect our financial results or the anticipated benefits of the Merger.

Uncertainty about the effect of the Merger on counterparties to contracts, employees and other parties may have an adverse effect on us or the anticipated benefits of the Merger. These uncertainties could cause contract counterparties and others who deal with us or Eastern to seek to change existing business relationships with us or Eastern, and may impact our and Eastern’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter.

The pursuit of the Merger and the preparation for the integration of the two companies may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results prior to and/or following the completion of the Merger and could limit us from pursuing attractive business opportunities and making other changes to our business prior to completion of the Merger or termination of the Merger Agreement.

We expect to incur substantial transaction costs in connection with the Merger.

We expect to incur a significant amount of non-recurring expenses in connection with the Merger, including investment banking, legal, accounting, consulting and other expenses. In general, these expenses are payable by us whether or not the Merger is completed. Additional unanticipated costs may be incurred following consummation of the Merger in the course of the integration of our businesses and the business of Eastern. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.

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

We made no unregistered sales of equity securities during the quarter ended June 30, 2025.

Issuer Purchases of Equity Securities

On May 27, 2021, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our stock, general market and economic conditions, our capital position, financial performance and alternative uses of capital, and applicable legal requirements. The program may be discontinued at any time. No shares were repurchased during the first six months of 2025. Historically, stock repurchases have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank. As of June 30, 2025, repurchases aggregating $6.8 million were available to be made under the current repurchase program.

Repurchases made during the second quarter of 2025 are detailed in the table below.

|  |  |  |  |  |  |  |  |  |  |  |  |  | Maximum Number |
|  |  |  |  |  |  |  |  |  |  |  |  |  | of Shares or |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Approximate Dollar |
|  |  |  |  |  |  |  |  |  | Total Number of |  |  | Value that May Yet |
|  | Total |  |  |  |  |  |  | Shares Purchased as |  |  | Be |
|  | Number of |  |  | Average |  |  | Part of Publicly |  |  | Purchased Under the |
|  | Shares |  |  | Price Paid Per |  |  | Announced Plans or |  |  | Plans or Programs |
Period |  | Purchased |  |  | Share |  |  | Programs |  |  | (Dollars in thousands) |
April 1 – 30 |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  | $ | 6,818 |
May 1 – 31 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 6,818 |
June 1 – 30 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 6,818 |
Total |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  | $ | 6,818 |

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits

EXHIBIT NO. | EXHIBIT DESCRIPTION
3.1 | Articles of Incorporation of Mercantile Bank Corporation, including all amendments thereto, incorporated by reference to Exhibit 3.1 of our Form S-4 Registration Statement filed February 16, 2022
3.2 | Our Amended and Restated Bylaws dated as of February 26, 2015 are incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed February 26, 2015
4.1 | Instruments defining the Rights of Security Holders – reference is made to Exhibits 3.1 and 3.2. In accordance with Regulation S-K Item 601(b)(4), Mercantile Bank Corporation is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of Mercantile Bank Corporation and its subsidiaries on a consolidated basis. Mercantile Bank Corporation hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
4.2 | Subordinated indenture, dated December 15, 2021, by and between Mercantile Bank Corporation and Wilmington Trust, National Association, as trustee, incorporated by reference to our Current Report on Form 8-K filed December 17, 2021
4.3 | First Supplemental Indenture to Subordinated indenture, dated December 15, 2021, by and between Mercantile Bank Corporation and Wilmington Trust, National Association, as trustee, incorporated by reference to our Current Report on Form 8-K filed December 17, 2021
4.4 | Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2032, incorporated by reference to our Current Report on Form 8-K filed December 17, 2021
4.5 | Form of Subordinated Note Purchase Agreement dated December 15, 2021, by and among Mercantile Bank Corporation and the Purchasers, incorporated by reference to our Current Report on Form 8-K filed December 17, 2021
4.6 | Form of Registration Rights Agreement dated December 15, 2021, by and among Mercantile Bank Corporation and the Purchasers, incorporated by reference to our Current Report on Form 8-K filed December 17, 2021
10.1 | Mercantile Bank Corporation Employee Stock Purchase Plan of 2025 (incorporated by reference to Appendix A of Mercantile's Proxy Statement for its 2025 Annual Shareholders Meeting, filed with the Commission on April 4, 2025)
31 | Rule 13a-14(a) Certifications
32.1 | Section 1350 Chief Executive Officer Certification
32.2 | Section 1350 Chief Financial Officer Certification
101 | The following financial information from Mercantile’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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 August 1, 2025.

| MERCANTILE BANK CORPORATION
| By: /s/ Raymond E. Reitsma
| Raymond E. Reitsma
| President and Chief Executive Officer (Principal Executive Officer)

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

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