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Item 9A. Controls and Procedures

2026-02-27 compared with 2025-03-03 · 614 added, 550 removed, 2541 unchanged (31% of the section changed)

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Refer to page F-26 for management’s report.

The Reports of the Independent Registered Public Accounting Firms included in this Annual Report are incorporated here by reference.

The Report by Mercantile Bank Corporation’s Management on Internal Control Over Financial Reporting included in this Annual Report is incorporated here by reference.

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting which is included on page F-25 of this report.

The Reports of the Independent Registered Public Accounting Firm included in this Annual Report are incorporated here by reference.

Other Information.

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(a) (1) Financial Statements.

The following financial statements and reports of the independent registered public accounting firms of Mercantile Bank Corporation and its subsidiaries are filed as part of this report:

Reports of Independent Registered Public Accounting Firms

The following financial statements and reports of the independent registered public accounting firm of Mercantile Bank Corporation and its subsidiaries are filed as part of this report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets --- December 31, 2025 and 2024

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Notes to Consolidated Financial Statements

The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, and the Reports of Independent Registered Public Accounting Firms listed above are incorporated by reference in Item 8 of this report.

The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, and the Reports of Independent Registered Public Accounting Firm listed above are incorporated by reference in Item 8 of this report.

Financial Statement Schedules

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID 166 , PLANTE & MORAN, PLLC , GRAND RAPIDS, MICHIGAN ) (PCAOB ID 243, BDO USA, P.C., GRAND RAPIDS, MICHIGAN)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 166 , PLANTE & MORAN, PLLC , GRAND RAPIDS, MICHIGAN )

REPORT BY MERCANTILE BANK CORPORATION’S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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changes in the national and local economies, and unstable political and economic environments;

and risk factors described in our annual report on Form 10-K for the year ended December 31, 2024.

difficulties integrating the business of Eastern Michigan Financial Corporation;

focus of time and effort of our management team toward integration efforts;

the anticipated benefits of the acquisition may not be realized;

risks related to the indebtedness incurred to finance the merger;

risks associated with the ongoing conversion of the core processing systems;

and risk factors described in this Annual Report.

These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the fiscal year ended December 31, 2024.

CRITICAL ACCOUNTING ESTIMATES

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Uncollectible 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 the Notes to our Consolidated Financial Statements in this Form 10-K for additional information on our estimation process and methodology related to the allowance.

See also Note 3 – Loans and Allowance for Credit Losses in the Notes to our Consolidated Financial Statements in this Form 10-K for further information regarding our loan portfolio and allowance.

See Note 1 – Significant Accounting Policies in the Notes to our Consolidated Financial Statements in this Annual Report for additional information on our estimation process and methodology related to the allowance.

See also Note 3 – Loans and Allowance for Credit Losses in the Notes to our Consolidated Financial Statements in this Annual Report for further information regarding our loan portfolio and allowance.

Mortgage Servicing Rights :

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Any impairment of a grouping is reported as a valuation allowance.

Core Deposit Intangible:

In whole bank or bank branch acquisitions, the primary identifiable intangible asset recorded is the value of core deposit intangibles, representing the estimated value of long-term deposit relationships acquired.

The determination involves assumptions and estimates, typically determined through discounted cash flow analysis, considering customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates.

Amortization of core deposit intangibles occurs over estimated useful lives reviewed periodically for reasonableness.

These estimated useful lives, typically ranging from seven to 10 years with an accelerated rate of amortization, are periodically reviewed for reasonableness.

Identifiable intangible assets, including core deposit intangibles, are assessed for impairment when events or changes suggest the carrying value may not be recoverable.

Our policy dictates recognition of an impairment loss equal to the difference between the asset’s carrying amount and fair value if the expected undiscounted future cash flows are less than the carrying amount.

Estimating future cash flows involves multiple estimates and assumptions, as previously mentioned.

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.

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This Management’s Discussion and Analysis should be read in conjunction with the consolidated financial statements contained in this Annual Report.

This discussion provides information about the consolidated financial condition and results of operations of Mercantile Bank Corporation and its consolidated subsidiaries, Mercantile Bank (“our bank”) and Mercantile Community Partners LLC ("MCP"), and Mercantile Insurance Center, Inc.

(“our insurance company”), a subsidiary of our bank.

This discussion provides information about the consolidated financial condition and results of operations of Mercantile Bank Corporation and its consolidated subsidiaries, Mercantile Bank, Eastern Michigan Bank (collectively “our banks”), Mercantile Community Partners LLC ("MCP"), and Mercantile Insurance Center, Inc.

(“our insurance company”), a subsidiary of Mercantile Bank.

Unless the text clearly suggests otherwise, references to “us,” “we,” “our,” or “the company” include Mercantile Bank Corporation and its wholly owned subsidiaries referred to above.

CLIMATE CHANGE

The potential impact of climate changes on our operations and the needs of our customers remains uncertain.

The potential impact of climate change on our operations and the needs of our customers remains uncertain.

Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns and intensities, and changing temperature levels.

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ENVIRONMENTAL, SOCIAL, AND GOVERNANCE MATTERS

Our Sustainability Committee supports our ongoing commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to our organization.

The Sustainability Committee is a cross-functional management committee, with oversight from the Governance and Nominating Committee and the Board of Directors, that assists us in:

(1) setting general strategies relating to ESG matters;

(2) developing, implementing, and monitoring initiatives and policies based on those strategies;

(3) recommending communications with employees, investors, and shareholders with respect to ESG matters;

and (4) monitoring and assessing developments relating to, and improving our understanding of, ESG matters.

The committee met three times during 2024.

Highlights for 2024 included expanding the impact of Mercantile Community Partners LLC to facilitate low-income housing tax credits, the completion and posting of the 2024 Corporate Sustainability Report, hiring a fulltime Director of Enterprise Excellence at the end of 2024 to oversee all ongoing ESG and sustainability efforts, implementation of a sustainability reporting platform, increased support of first-time home buyers mortgage programs, and over 27,500 hours of volunteering in the community completed by employees.

Our bank maintains a Clawback Policy;

Our Enterprise Excellence Committee supports our ongoing commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to our organization.

The Enterprise Excellence Committee is a cross-functional management committee, with oversight from the Governance and Nominating Committee and the Board of Directors, that assists us in:

(1) establishing a cadence of improvement throughout our banks for process efficiency and effectiveness, (2) monitoring and assessing developments related to improving our banks' understanding and execution of governance, environment, and community matters, and (3) recommending communications with employees, investors and stakeholders with respect to governance, environment, and community matters.

The Enterprise Excellence Committee met three times during 2025.

Highlights for 2025 included continued growth of MCP to facilitate low-income housing tax credits and our investment in energy tax credits, completion of the Enterprise Excellence Report, full utilization of a sustainability reporting platform for data tracking, continued support of first-time home buyer mortgage programs, and over 28,000 hours of volunteering in the community completed by employees.

We also maintain a Clawback Policy;

an Insider Trading Policy;

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Human Rights Policy;

and Supplier Diversity Program Policy;

these policies are reviewed and approved by our Board of Directors at least annually and can be found on our website.

and Community Supplier Program Policy, which are reviewed and approved by our Board of Directors at least annually and can be found on our website.

FINANCIAL OVERVIEW

On December 31, 2025, we consummated the acquisition of Eastern Michigan Financial Corporation and its wholly owned banking subsidiary, Eastern Michigan Bank, headquartered in Croswell, Michigan.

The newly acquired Eastern Michigan Bank will operate alongside our existing bank, Mercantile Bank, until the first quarter of 2027, at which time we plan to consolidate Eastern Michigan Bank into Mercantile Bank in conjunction with a conversion of our core operating system to a new provider.

Consideration totaled $95.8 million, consisting of 924,999 shares of common stock with an aggregate value of $44.9 million and cash totaling $50.9 million.

The aggregate fair value of assets acquired was $549 million, consisting largely of loans ($201 million) and securities ($198 million).

The aggregate value of liabilities acquired was $476 million, comprised almost exclusively of deposits.

We recorded goodwill of $23.2 million and a core deposit intangible asset of $20.4 million.

We use the word “our” throughout the following discussion to represent Mercantile Bank Corporation’s balance sheets as of December 31, 2024, and December 31, 2025, excluding the impact of the Eastern Michigan Financial Corporation acquisition consummated as of close of business on December 31, 2025.

This format provides for a delineation of Mercantile Bank Corporation’s results during 2025 and the acquisition impact.

We recorded net income of $88.8 million, or $5.47 per basic and diluted share, for 2025, compared with net income of $79.6 million, or $4.93 per basic and diluted share, for 2024.

While noninterest income increased during 2024, net income was negatively impacted by expected lower net interest income and higher noninterest expenses.

Growth in net income largely reflected increased net interest income and noninterest income, lower provision expense and reduced federal income tax expense, which more than offset increased noninterest expenses.

Commercial loans increased $211 million, or approximately 6%, during 2025.

Multi-family and residential rental property loans were up $143 million, nonowner-occupied commercial real estate (“CRE”) loans grew $92.7 million, commercial and industrial loans increased $32.7 million, and owner-occupied CRE loans were up $31.2 million, while vacant land, land development, and residential construction loans decreased $7.8 million.

As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 54.9% at December 31, 2024, compared to 57.7% at year-end 2023.

The new commercial loan pipeline remains strong, and at December 31, 2024, we had $245 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Our commercial loans grew $58.6 million during 2025, with Eastern Michigan Bank’s commercial loans aggregating $153 million at year-end 2025.

Our commercial loan growth during 2025 was impacted by increased payoffs and partial paydowns of larger commercial loan relationships totaling $312 million during the year, compared to $194 million during 2024.

As a percentage of total commercial loans, commercial and industrial loans and owner-occupied commercial real estate ("CRE") loans combined equaled 55.0% at December 31, 2025, compared to 54.9% at year-end 2024.

The new commercial loan pipeline remains strong, and at year-end 2025, we had $237 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

Residential mortgage loans decreased $36.7 million, or approximately 4%, during 2025.

Our residential mortgage loans declined $60.7 million during 2025, with Eastern Michigan Bank’s residential mortgage loans aggregating $24.0 million at year-end 2025.

Residential mortgage loan originations totaled $521 million during 2025, compared to $485 million in 2024.

Approximately 78% of the residential mortgage loans originated during 2024 were done so with the intent to sell, compared to about 53% in 2023.

The increases in volume of loans originated and percentage of loans sold had a positive impact on mortgage banking income.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling 0.12% of total loans as of December 31, 2024.

Accruing loans past due 30 to 89 days remain low, with little foreclosed property activity throughout 2024.

Loan charge-offs totaled $3.8 million during 2024, while recoveries of prior period loan charge-offs totaled $0.9 million, providing for net loan charge-offs of $2.9 million, or 0.06% of average total loans, for the year.

Approximately 81% of the residential mortgage loans originated during 2025 were done so with the intent to sell, compared to about 78% and 53% in 2024 and 2023, respectively.

Combined with increased prepayments speeds of our residential mortgage loan portfolio during the past two years, the increase in the percentage of loans sold has resulted in a declining portfolio balance.

The increases in volume of loans originated and percentage of loans sold have had a positive impact on mortgage banking income.

The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $7.9 million, or 0.16% of total loans, as of December 31, 2025.

Our nonperforming loans totaled $6.9 million with Eastern Michigan Bank’s nonperforming loans aggregating $1.0 million at year-end 2025.

Accruing loans past due 30 to 89 days remain very low with very limited foreclosed property activity throughout 2025 at both banks.

Our loan charge-offs totaled $3.1 million during 2025, while recoveries of prior period loan charge-offs totaled $1.2 million, providing for net loan charge-offs of $1.9 million, or 0.04% of average total loans, for the year.

Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity.

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The higher average balance primarily reflects an increase in deposits associated with our strategic initiative to lower the loan-to-deposit ratio.

Total deposits increased $797 million during 2024, providing for a growth rate of approximately 20%.

A majority of the growth was in money market and time deposit products.

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $80.8 million during 2024.

Total deposits increased $586 million during 2025, or approximately 12%.

Our deposits grew $111 million during 2025, with Eastern Michigan Bank’s deposits aggregating $475 million at year-end 2025.

A majority of the growth was in money market, interest checking and local time deposit products.

Securities sold under agreements to repurchase (“sweep accounts”) grew $111 million, while Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $60.9 million during 2025.

Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $457 million, or about 8% of total funds, as of December 31, 2025.

Net interest income decreased $2.5 million during 2024 compared to 2023.

Interest income was up $50.1 million, in large part reflecting $569 million of growth in average earning assets and a 34 basis point increase in the yield on average earning assets.

Interest expense was up $52.6 million, primarily reflecting $699 million growth in average interest-bearing liabilities and a 91 basis point increase in the cost of interest-bearing liabilities.

Net interest income increased $10.0 million during 2025 compared to 2024.

Interest income was up $8.7 million, in large part reflecting $460 million growth in average earning assets, which more than offset a 32 basis point decline in the yield on average earning assets.

Interest expense was down $1.3 million, primarily reflecting a 35 basis point decline in the cost of interest-bearing liabilities which more than offset growth in interest-bearing liabilities aggregating $415 million.

We recorded a credit loss provision expense of $3.2 million during 2025, compared to $7.4 million during 2024.

The provision expense recorded during 2024 was generally necessitated by increased required reserve levels stemming from loan growth, slower residential mortgage loan prepayment speeds and specific allocations for two nonperforming nonreal-estate-related commercial loan relationships.

Noninterest income increased $8.2 million during 2024 compared to 2023, primarily reflecting higher mortgage banking income and service charges on deposit accounts, the latter stemming from growth in treasury management fees.

Growth in payroll service income and revenue associated with a private equity investment also benefited noninterest income during 2024, as well as benefit claims on bank owned life insurance policies.

The provision expense recorded during 2025 in large part reflected a reserve increase related to changes in the economic forecast, a net increase in specific reserve allocations and a net increase from changes in several qualitative factors, which were partially mitigated by reductions to the allowance for credit losses stemming from faster residential mortgage and consumer loan prepayment speeds that shortened the average durations of the portfolios and lower baseline loss rates.

Noninterest income increased $1.2 million during 2025 compared to 2024, primarily reflecting growth in service charges on deposit accounts, mortgage banking income, credit and debit card income, and payroll service fees, as well as benefit claims on bank owned life insurance policies.

Swap income declined in large part due to a lower volume of new swap transactions.

Noninterest expense increased $10.2 million during 2025 compared to 2024.

Aggregate salary and benefit costs grew $9.1 million, primarily reflecting annual merit pay increases, market adjustments, higher bonus/incentive accruals and residential mortgage lender commissions, lower residential mortgage loan deferred salary costs and increased medical insurance expenses.

Aggregate salary and benefit costs grew $5.3 million, primarily reflecting annual merit pay increases, market adjustments and lower residential mortgage loan deferred salary costs.

Increased data processing costs were also recorded during 2025, largely reflecting higher transaction volumes and software support costs, along with the introduction of new treasury management products and services.

Higher allocations to the reserve for unfunded loan commitments were also recorded, largely reflecting a higher level of committed and accepted commercial loans.

Professional fees associated with the acquisition of Eastern Michigan Financial Corporation totaled $1.8 million during 2025.

Despite increased pre-tax income during 2025 compared to 2024, federal income tax expense was $4.0 million lower.

The reduction primarily reflects the acquisition of transferable energy tax credits, combined with net benefits associated with our low-income housing and historical tax credit activities.

FINANCIAL CONDITION

Our total assets increased $699 million during 2024, and totaled $6.05 billion as of December 31, 2024.

Total assets increased $783 million during 2025, totaling $6.84 billion as of December 31, 2025.

Our total assets increased $211 million during 2025, with Eastern Michigan Bank’s assets totaling $572 million at year-end 2025.

Total loans increased $221 million, securities available for sale were up $372 million and interest-earning deposits grew $82.6 million.

Total deposits increased $797 million and shareholders’ equity grew $62.4 million, while securities sold under agreements to repurchase (“sweep accounts) decreased $108 million and FHLBI advances declined $80.8 million.

Our loans increased $17.4 million, securities available for sale were up $174 million and interest-earning deposits grew $40.5 million during 2025, with Eastern Michigan Bank’s loans, securities available for sale and interest-earning deposits totaling $204 million, $198 million and $42.1 million at year-end 2025, respectively.

Total deposits increased $586 million during 2025, with our deposits growing $111 million during the year and Eastern Michigan Bank’s deposits aggregating $475 million at year-end 2025.

Sweep accounts grew $111 million, while FHLBI advances declined $60.9 million during 2025.

Shareholders’ equity was up $140 million during 2025.

Earning Assets

Average earning assets equaled 94.4% of average total assets during both 2024 and 2023.

The loan portfolio continued to comprise a majority of earning assets, followed by securities and interest-earning deposits.

Average total loans equaled 82.9% of average earning assets during 2024, compared to 84.7% in 2023, while average securities and interest-earning deposits comprised 12.7% and 4.4% of average earning assets during 2024 and 13.1% and 2.2% of average earning assets during 2023, respectively.

Average earning assets equaled 94.5% of average total assets during 2025, compared to 94.7% during 2024.

The loan portfolio continued to comprise a majority of earning assets, followed by securities and other interest-earning assets.

Average total loans equaled 79.9% of average earning assets during 2025, compared to 82.6% in 2024, while average securities and other interest-earning assets comprised 14.1% and 6.0% of average earning assets during 2025 and 12.2% and 5.2% of average earning assets during 2024, respectively.

The decline in the percentage of loans to average earning assets and similar increase in the percentage of securities to average earning assets largely reflect our strategic initiative to reduce our loan-to-deposit ratio.

Our loan portfolio has historically been primarily comprised of commercial loans.

Commercial loans increased $292 million, or approximately 9%, during 2024.

Multi-family and residential rental property loans were up $143 million, nonowner-occupied CRE loans grew $92.7 million, commercial and industrial loans increased $32.7 million, and owner-occupied CRE loans were up $31.2 million, while vacant land, land development, and residential construction loans decreased $7.8 million.

As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 54.9% at December 31, 2024, compared to 57.7% at year-end 2023.

We believe our commercial loan portfolio remains well diversified.

As of December 31, 2024, availability on commercial construction and development loans that are in the construction phase totaled $245 million, with most of the funds expected to be drawn over the next 12 to 18 months.

Commercial loans increased $211 million during 2025, and totaled $3.92 billion at year-end 2025.

Our commercial loans grew $58.6 million during 2025, with Eastern Michigan Bank’s commercial loans aggregating $153 million at year-end 2025.

Our multi-family and residential rental property loans were up $59.9 million, commercial and industrial loans increased $47.7 million and vacant land, land development and residential construction loans were up $12.5 million.

Nonowner-occupied CRE loans declined $43.0 million and owner-occupied CRE loans were down $18.5 million.

Eastern Michigan Bank’s commercial loan portfolio is well-diversified, with owner-occupied CRE loans totaling $48.5 million, commercial and industrial loans aggregating $39.4 million, vacant land, land development and residential construction loans totaling $37.9 million, nonowner-occupied CRE loans aggregating $25.3 million and multi-family and residential rental property loans totaling $1.5 million as of December 31, 2025.

As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 55.0% as of December 31, 2025, compared to 54.9% at year-end 2024.

Availability on commercial construction and development loans that are in the construction phase totaled $237 million as of December 31, 2025, with most of the funds expected to be drawn over the next 12 to 18 months.

Our current pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including $298 million in new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months.

Our commercial lenders also report additional opportunities they are currently discussing with existing borrowers and potential new customers.

We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we established within our commercial loan portfolio.

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 was relatively stable during 2025 at approximately 44%, a small increase from 2024 but similar to our historical average.

Residential mortgage loans decreased $9.8 million, or approximately 1%, during 2024.

Residential mortgage loans decreased $36.7 million during 2025, and totaled $791 million at year-end 2025.

Our residential mortgage loans declined $60.7 million during 2025, with Eastern Michigan Bank’s residential mortgage loans aggregating $24.0 million at year-end 2025.

Residential mortgage loan originations totaled $521 million during 2025, compared to $485 million in 2024.

Approximately 78% of the residential mortgage loans originated during 2024 were done so with the intent to sell, compared to about 53% in 2023.

In mid-2023, we altered our residential mortgage loan pricing strategy to encourage borrowers to select fixed rate residential loan products that we could sell rather than selecting adjustable rate residential mortgage loan products that we had to fund on our balance sheet.

The strategy not only provided for less residential mortgage loans being funded on our balance sheet, but also resulted in higher mortgage banking income.

The increased volume of loans originated also benefited mortgage banking income.

Other consumer-related loans totaled $65.9 million, or 1.4% of total loans, at December 31, 2024.

Approximately 81% of the residential mortgage loans originated during 2025 were done so with the intent to sell, compared to about 78% and 53% in 2024 and 2023, respectively.

The increases in volume of loans originated and percentage of loans sold have had a positive impact on mortgage banking income.

Other consumer-related loans increased $46.5 million during 2025, and totaled $112 million at year-end 2025 with about 74% comprised of home equity lines of credit.

Our consumer loans increased $19.5 million during 2025, with Eastern Michigan Bank’s other consumer-related loans aggregating $27.0 million at year-end 2025.

We expect this loan portfolio segment to remain relatively steady in dollar amount but decline as a percent of total loans in future periods as the commercial loan segment grows.

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(Dollars in thousands)

Fifteen Years

Construction and land development

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In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming loans totaled $5.7 million, or 0.12% of total loans, as of December 31, 2024, compared to $3.4 million, or 0.08% of total loans, as of December 31, 2023.

Accruing loans past due 30 to 89 days remain low, with little foreclosed property activity throughout 2024.

The volume of nonperforming assets has remained under 0.3% of total assets since year-end 2015, and has averaged 0.1% over the past six years.

The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $7.9 million, or 0.16% of total loans, as of December 31, 2025.

Our nonperforming loans totaled $6.9 million with Eastern Michigan Bank’s nonperforming loans aggregating $1.0 million at year-end 2025.

The volume of nonperforming assets has remained under 0.3% of total assets since year-end 2015 and has averaged 0.1% over the past seven years.

Accruing loans past due 30 to 89 days remain very low with very limited foreclosed property activity throughout 2025 at both banks.

Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

Loan charge-offs totaled $0.9 million during 2023, while recoveries of prior period loan charge-offs totaled $0.8 million, providing for net loan charge-offs of $0.1 million, or less than 0.01% of average total loans, for the year.

We continue our collection efforts on charged-off loans, and we expect to record recoveries in future periods;

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Other consumer

The following table reflects the composition of our allowance for loan losses, nonaccrual loans, and net charge-offs as of and for the year ended December 31, 2022.

The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the year ended December 31, 2023.

(Dollars in thousands)

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Ratio of allowance to nonperforming loans

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and the timeliness of scheduled payments.

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.

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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 Form 10-K 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 Form 10-K for further information regarding our loan portfolio and allowance.

See Note 1 - Significant Accounting Policies in this Annual Report 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 Annual Report for further information regarding our loan portfolio and allowance.

The allowance equaled $58.2 million, or 1.21% of total loans, and over 700% of nonperforming loans, as of December 31, 2025.

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Loans with an aggregate carrying value of $3.2 million as of December 31, 2025, had been subject to previous partial charge-offs aggregating $3.5 million over the past several years, including $2.8 million during 2025.

As of December 31, 2024, there were no specific reserves allocated to loans that had been subject to a previous partial charge-off.

As of December 31, 2025, there were $2.7 million of specific reserves allocated to loans that had been subject to a previous partial charge-off.

Although we believe the allowance is adequate to absorb loan losses in our originated 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.

Securities available for sale increased $113 million during 2024, totaling $730 million as of December 31, 2024.

Purchases of U.S.

Government agency bonds during 2024 aggregated $143 million, while proceeds from matured U.S.

Securities available for sale increased $372 million during 2025, totaling $1.10 billion as of December 31, 2025.

Our securities available for sale increased $174 million, with Eastern Michigan Bank’s securities available for sale totaling $198 million at year-end 2025.

Our purchases of U.S.

Government agency bonds during 2025 aggregated $167 million, while proceeds from matured and called U.S.

Government agency bonds totaled $54.0 million.

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Government agency guaranteed mortgage-backed securities totaled $3.4 million.

Purchases of municipal bonds totaled $31.1 million during 2024;

Our purchases of municipal bonds totaled $35.9 million during 2025;

proceeds from matured municipal bonds totaled $9.9 million.

At December 31, 2024, the portfolio was primarily comprised of U.S.

Government agency bonds (68%), municipal bonds (29%), and U.S.

Government agency guaranteed mortgage-backed securities (3%).

The portfolio was primarily comprised of U.S.

Government agency bonds (58%), municipal bonds (25%), U.S.

Government agency guaranteed mortgage-backed securities (7%), U.S.

Treasury securities (5%) and corporate bonds (4%) as of December 31, 2025.

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 at December 31, 2024 totaled $730 million, including a net unrealized loss of $63.1 million.

The fair value of securities designated as available for sale as of December 31, 2025 totaled $1.10 billion, including a net unrealized loss of $30.4 million.

The net unrealized loss equaled $63.1 million as of December 31, 2024.

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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.

Government agencies, U.S.

Treasury securities, corporate bonds 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.

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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 December 31, 2024, unchanged from December 31, 2023.

FHLBI stock totaled $22.1 million as of December 31, 2025, an increase of $0.6 million during 2025 reflecting Eastern Michigan Bank’s stock investment as of year-end 2025.

Our investment in FHLBI stock is necessary to engage in their 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.

Other interest-earning assets, a vast majority of which is comprised of a deposit with the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate risk sensitivity.

The average deposit balance at the Federal Reserve Bank of Chicago equaled $286 million during 2025 compared to $221 million in 2024.

The following table shows by class of maturities as of December 31, 2025, the amounts and weighted average yields (on a fully taxable-equivalent basis) of investment securities:

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Obligations of U.S.

One year or less

Over one through five years

Over five through ten years

Over ten years

Obligations of U.S.

Government agencies:

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Other investments

The average balance of these funds equaled $237 million during 2024, compared to $107 million in 2023.

The higher average balance primarily reflects an increase in deposits associated with our strategic initiative to lower the loan-to-deposit ratio.

Non-Earning Assets

Cash and due from bank balances averaged 0.9% of total assets during 2025, similar to the average level during 2024, with no significant changes expected in future periods.

Net premises and equipment equaled $53.4 million at December 31, 2024, representing an increase of $2.5 million during 2024.

Aggregate investments in new and existing offices totaled $8.5 million, while depreciation expense aggregated $6.0 million.

Net premises and equipment equaled $62.5 million as of December 31, 2025, representing an increase of $9.0 million during 2025.

Our aggregate investments in new and existing offices totaled $6.7 million, while depreciation expense aggregated $5.2 million.

Eastern Michigan Bank’s fixed assets totaled $7.5 million at year-end 2025.

We had no other real estate owned as of December 31, 2025.

Other assets equaled $148 million at December 31, 2024, reflecting an increase of $22.8 million from year-end 2023.

The growth is primarily associated with an aggregate $13.6 million increase in low-income housing and historical tax credit investments and a $7.0 million purchase of additional bank owned life insurance.

Other assets equaled $218 million as of December 31, 2025, reflecting an increase of $48.0 million from year-end 2024.

Our other assets increased $32.7 million during 2025, with Eastern Michigan Bank’s other assets totaling $15.3 million as of December 31, 2025.

The increase is primarily associated with an increase of $35.5 million in receivables from the U.S.

Department of Treasury largely reflecting activity in transferrable energy tax credit investments and net growth of $12.2 million in low-income housing and historical tax credit investments.

Source of Funds

Total deposits increased $797 million, or over 20%, during 2024, and totaled $4.70 billion at December 31, 2024.

Local deposits increased $816 million, while out-of-area deposits declined $18.7 million, during 2024.

Sweep accounts decreased $108 million, and FHLBI advances declined $80.8 million.

Total deposits increased $586 million during 2025, or approximately 12%.

Our deposits grew $111 million during 2025, with Eastern Michigan Bank’s deposits aggregating $475 million at year-end 2025.

A majority of the growth was in money market, interest checking and local time deposit products.

Sweep accounts grew $111 million, while FHLBI advances declined $60.9 million during 2025.

Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $457 million, or about 8% of total funds, as of December 31, 2025.

Money market, local time deposit and interest-bearing checking accounts increased $559 million, $178 million and $103 million, respectively, during 2024, largely reflecting growth in deposits from existing customers and initial deposits from new customers stemming from our strategic initiative to grow local deposits to lower the loan-to-deposit ratio.

Savings deposits declined $40.7 million, primarily reflecting transfers to higher-paying money market and time deposit products.

Noninterest-bearing checking accounts grew $16.9 million;

however, that includes a business deposit of approximately $90 million made near the end of 2024 that was withdrawn in early 2025.

On an average basis, noninterest-bearing checking accounts declined $199 million during 2024 compared to 2023, largely reflecting transfers to higher-paying deposit accounts.

Our money market, interest-bearing checking and local time deposit accounts increased $124 million, $45.3 million and $24.2 million, respectively, during 2025, largely reflecting growth in deposits from existing customers and initial deposits from new customers stemming from our strategic initiative to grow local deposits to lower the loan-to-deposit ratio.

Our noninterest-bearing checking accounts declined $58.1 million;

however, that includes an expected business deposit withdrawal of approximately $90 million made in early 2025 that had been deposited near the end of 2024.

Out-of-area deposits declined $19.2 million, and savings deposits were down $5.2 million as of December 31, 2025.

Eastern Michigan Bank’s deposits were comprised of interest checking accounts totaling $174 million, noninterest-checking accounts aggregating $133 million, savings accounts equaling $93.5 million, money market accounts totaling $57.0 million and time deposits aggregating $17.1 million as of December 31, 2025.

Uninsured deposits totaled approximately $2.9 billion, or about 54% of total deposits, as of December 31, 2025, compared to approximately $2.5 billion, or about 54% of total deposits, as of December 31, 2024.

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Total certificates of deposit

Sweep accounts declined $108 million during 2024, totaling $122 million as of December 31, 2024.

Sweep accounts increased $111 million during 2025, totaling $232 million as of December 31, 2025.

The aggregate balance of this funding type can be subject to relatively large daily fluctuations given the nature of the customers utilizing this product and the sizable balances that several of the customers maintain.

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Bullet advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing 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.

Advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on certain commercial real estate property loans, and substantially all other assets of our bank under a blanket lien arrangement.

Our borrowing line of credit at year-end 2025 totaled $1.08 billion, with remaining availability based on collateral of $777 million.

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Positively impacting shareholders’ equity during 2025 was a $25.8 million decline in the after-tax net unrealized loss on available for sale securities.

Common stock issued in conjunction with the acquisition of Eastern Michigan Financial Corporation totaled $44.9 million.

RESULTS OF OPERATIONS

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We recorded net income of $88.8 million, or $5.47 per basic and diluted share, for 2025, compared to net income of $79.6 million, or $4.93 per basic and diluted share, for 2024.

Diluted earnings per share decreased $0.20, or 3.9%, during 2024 compared to 2023.

The decrease in net income during 2024 compared to 2023 reflected increased noninterest expense and lower net interest income, which more than offset higher noninterest income and a reduced provision for credit losses.

Noninterest expense was up in 2024 primarily due to increased salary and benefit and data processing costs.

Net interest income declined during 2024 as growth in earning assets, most notably in loans, and a higher yield on earning assets were more than offset by growth in interest-bearing liabilities and an increased cost of funds.

The provision expense recorded during 2024 and 2023 included allocations necessitated by net loan growth, slower residential mortgage loan prepayment rates and the associated extended average life of the portfolio, and changes in environmental factors.

Individual allocations created for two deteriorated commercial loan relationships also contributed to the provision expense recorded during 2024.

Noninterest income increased significantly during 2024, largely reflecting growth in mortgage banking income, treasury management fees, bank owned life insurance income, and payroll services fees, along with revenue associated with an investment in a private equity fund.

Diluted earnings per share increased $0.54, or 11.0%, during 2025 compared to 2024.

The increase in net income during 2025 compared to 2024 primarily reflected growth in net interest income and lower levels of provisions for credit losses and federal income tax expense, which more than offset increased noninterest expense.

A higher level of noninterest income, mainly reflecting growth in treasury management fees, bank owned life insurance income, mortgage banking income, and payroll services fees, also contributed to the increase in net income.

Net interest income increased during 2025 as growth in earning assets and a decline in the cost of funds more than offset a lower yield on earning assets and growth in interest-bearing liabilities.

The provision expense recorded during 2025 primarily reflected a reserve increase related to changes in the economic forecast, a net increase in specific allocations driven by a significant allocation for a deteriorated commercial construction loan relationship, and a net increase in qualitative factor allocations.

The impacts of these factors were partially offset by reductions in the reserve related to faster residential mortgage and consumer loan prepayment speeds and the associated reduced average lives of the portfolios and changes in baseline loss rates.

The decrease in federal income tax expense during 2025 primarily reflected the recording of tax benefits associated with the acquisition of transferable energy tax credits and investments in low-income housing and historic tax credit structures.

The higher level of noninterest expense during 2025 mainly resulted from increased salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, and lower residential mortgage loan deferred salary costs, the recording of costs related to the Eastern Michigan Financial Corporation acquisition, growth in data processing costs, and higher allocations to the reserve for unfunded loan commitments.

Net Interest Income

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During 2024, interest income and interest expense equaled $322 million and $130 million, respectively, providing for net interest income of $192 million.

In comparing 2024 with 2023, interest income increased 18.5%, interest expense was up 67.6%, and net interest income decreased 1.3%.

In comparing 2025 with 2024, interest income increased 2.7%, interest expense decreased 1.0%, and net interest income was up 5.2%.

The level of net interest income is primarily a function of asset size, as the weighted average interest rate received on earning assets is greater than the weighted average interest cost of funding sources; however, factors such as types and levels of assets and liabilities, the interest rate environment, interest rate risk, asset quality, liquidity, and customer behavior also impact net interest income as well as the net interest margin.

The $2.5 million decline in net interest income in 2024 compared to 2023 resulted from a decreased net interest margin, which more than offset an increase in earning assets, particularly in loans.

During 2024, the net interest margin equaled 3.58%, down from 4.05% during 2023 due to a higher cost of funds, which more than offset an increase in the yield on average earning assets.

The cost of funds rose from 1.63% in 2023 to 2.44% in 2024 mainly due to higher costs of deposits and borrowed funds, largely reflecting the impact of a rising interest rate environment.

A change in funding mix, primarily consisting of a decrease in average noninterest-bearing and lower-cost deposits and an increase in average higher-cost money market accounts and time deposits, also contributed to the higher cost of funds.

The increases in money market accounts and time deposits stemmed from new deposit relationships, growth in existing deposit relationships, and deposit migration.

The yield on average earning assets was 6.02% during 2024, an increase from 5.68% during the prior year.

The higher yield primarily resulted from an increased yield on loans.

The yield on loans was 6.61% during 2024, up from 6.25% during 2023 mainly due to higher interest rates on variable-rate commercial loans stemming from the Federal Reserve’s Federal Open Market Committee (“FOMC”) raising the targeted federal funds rate in an effort to reduce elevated inflation levels and a significant level of commercial loans being originated over the past 24 months in the higher interest rate environment.

The FOMC increased the targeted federal funds rate by 100 basis points during the period of February 2023 through July 2023, during which time average variable-rate commercial loans represented approximately 65% of average total commercial loans.

The positive impact of the rate hikes was partially mitigated by the FOMC’s lowering of the targeted federal funds rate by 100 basis points during the last four months of 2024.

An improved yield on securities, reflecting the increased interest rate environment, also contributed to the enhanced yield on average earning assets.

The $10.0 million increase in net interest income in 2025 compared to 2024 resulted from growth in earning assets, which more than offset a decreased net interest margin.

During 2025, earning assets averaged $5.83 billion, up $460 million, or 8.6%, from $5.37 billion during 2024.

Average loans increased $386 million, average interest-earning deposits were up $131 million, and average securities grew $52.6 million.

Average loans increased $222 million, average securities grew $165 million, and average other interest-earning assets were up $73.3 million.

During 2025, the net interest margin equaled 3.47%, down from 3.58% during 2024 due to a lower yield on average earning assets, which more than offset a decreased cost of funds.

The yield on average earning assets was 5.69% during 2025, a decline from 6.01% during 2024.

The decreased yield resulted from a lower yield on loans, a change in earning asset mix, and a reduced yield on other interest-earning assets, which more than offset an improved yield on securities reflecting the reinvestment of relatively low-yielding bonds and portfolio growth activities.

The yield on loans was 6.26% during 2025, down from 6.59% during 2024 largely due to reduced interest rates on variable-rate commercial loans stemming from the FOMC lowering 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 and September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 75% of average total commercial loans.

Signifying the success of a strategic initiative to lower the loan-to-deposit ratio and increase on-balance sheet liquidity, higher-yielding loans accounted for a decreased percentage of earning assets and lower-yielding securities represented an increased percentage of earning assets in 2025 compared to 2024.

The decreased yield on other interest-earning assets during 2025 primarily reflected the lower interest rate environment.

The yield on securities equaled 2.86% during 2025, up from 2.29% during 2024.

The cost of funds was 2.22% during 2025, down from 2.43% during 2024, mainly due to decreased rates paid on money market accounts and time deposits, reflecting the reduced interest rate environment that began in September of 2024 in conjunction with the FOMC’s lowering of the targeted federal funds rate.

The following table depicts the average balance, interest earned and paid, and weighted average rate of our assets, liabilities, and shareholders’ equity during 2025, 2024, and 2023.

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Securities interest income was increased by $1.0 million in 2025, 2024, and 2023 for this non-GAAP, but industry standard, adjustment.

These adjustments equated to increases in our net interest margin of less than one basis point during all three years.

These adjustments equated to increases in our net interest margin of less than two basis points in 2025 and 2024 and slightly over two basis points in 2023.

Years ended December 31,

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Total securities

Interest-earning deposits

Other interest-earning assets

Total earning assets

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Tax exempt securities

Interest-earning deposits

Other interest-earning assets

Net change in tax-equivalent interest income

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Interest income, which is primarily generated from the loan portfolio, increased $8.7 million during 2025 from that earned in 2024, totaling $331 million in 2025 compared to $322 million in 2024.

The increase in interest income is attributable to growth in, and a higher yield on, average earning assets.

The increase in interest income is attributable to growth in average earning assets, which more than offset a lower yield on average earning assets.

During 2025 and 2024, earning assets had an average yield (tax equivalent-adjusted basis) of 5.69% and 6.01%, respectively.

The improved yield on average earning assets primarily resulted from an increased yield on loans, mainly reflecting higher interest rates on variable-rate commercial loans stemming from the previously mentioned FOMC rate hikes.

An enhanced yield on securities, reflecting the increased interest rate environment, also contributed to the improved yield on average earning assets.

Interest income generated from the loan portfolio increased $40.1 million in 2024 compared to the level earned in 2023.

Growth in the loan portfolio during 2024 resulted in a $25.0 million increase in interest income, while an upturn in loan yield from 6.25% in 2023 to 6.61% in 2024 resulted in a $15.1 million increase in interest income.

The higher yield on loans primarily resulted from an improved yield on commercial loans, which increased from 6.84% during 2023 to 7.13% during 2024 mainly due to the aforementioned FOMC rate increases and a significant level of commercial loans being originated in the past 24 months in the higher interest rate environment.

An improved yield on residential mortgage loans, reflecting the increasing interest rate environment, also contributed to the higher yield on loans.

The decreased yield on average earning assets primarily resulted from a lower yield on loans, mainly reflecting reduced interest rates on variable-rate commercial loans stemming from the previously mentioned FOMC rate cuts, a change in earning asset mix, reflecting a decrease in higher-yielding loans and an increase in lower-yielding securities as a percentage of earning assets, and a lower yield on other interest-earning assets, reflecting the decreased interest rate environment.

An enhanced yield on securities, reflecting the reinvestment of relatively low-yielding bonds and portfolio growth activities, positively impacted the yield on average earning assets during 2025.

Interest income generated from the loan portfolio decreased $0.6 million in 2025 compared to the level earned in 2024.

A reduction in the loan yield from 6.59% in 2024 to 6.26% in 2025 resulted in a $14.9 million decrease in interest income, while growth in the loan portfolio during 2025 resulted in a $14.3 million increase in interest income.

The lower yield on loans primarily resulted from a decreased yield on commercial loans, which declined from 7.13% during 2024 to 6.63% during 2025 mainly due to the aforementioned FOMC rate cuts.

Interest income generated from the securities portfolio increased $8.5 million in 2025 compared to the level earned in 2024.

A rise in the yield on securities from 2.29% during 2024 to 2.86% during 2025 resulted in a $4.5 million increase in interest income, while growth in the average balance of the securities portfolio during 2025 resulted in an increase in interest income of $4.0 million.

Reflecting a higher average balance, interest income on interest-earning deposits increased $6.8 million in 2024 from the level earned in 2023.

The growth in average securities and interest-earning deposits during 2024 compared to 2023 primarily reflected the success of our strategic initiatives to grow local deposits and decrease our loan-to-deposit ratio.

Interest income generated from other interest-earning assets was up $0.8 million in 2025 compared to 2024, reflecting the net impact of a $3.7 million increase in interest income resulting from growth in these assets and a $2.9 million decrease in interest income resulting from a decreased yield on these assets.

The growth in average securities and other interest-earning assets during 2025 compared to 2024 primarily reflected the ongoing success of our strategic initiatives to grow local deposits and decrease our loan-to-deposit ratio.

Interest expense is generated from interest-bearing deposits and borrowed funds.

Interest expense increased $52.6 million during 2024 from that expensed in 2023, totaling $130 million in 2024 compared to $77.8 million in 2023.

Growth in the average balance of interest-bearing liabilities during 2024 compared to 2023 resulted in a $27.9 million increase in interest expense, while a rise in the cost of these liabilities from 2.47% during 2023 to 3.38% during 2024 resulted in an increase in interest expense of $24.7 million.

During 2024, interest-bearing liabilities averaged $3.85 billion, representing an increase of $699 million, or 22.1%, from the $3.16 billion average during 2023; average interest-bearing deposits and borrowings were up $674 million and $24.7 million, respectively.

The higher average cost of interest-bearing liabilities mainly resulted from increased costs of deposit accounts.

An increased cost of borrowings, along with a change in interest-bearing liability mix, also contributed to the higher average cost of interest-bearing liabilities.

The cost of interest-bearing non-time deposit accounts increased from 1.94% during 2023 to 2.76% during 2024, primarily reflecting a change in mix, consisting of an increase in higher-paying money market accounts, and higher interest rates paid on business money market and checking accounts, reflecting the increased interest rate environment.

The cost of time deposits rose from 3.55% during 2023 to 4.72% during 2024 mainly due to higher rates paid on local time deposits, reflecting the increased interest rate environment.

The cost of borrowed funds increased from 2.90% during 2023 to 3.65% during 2024, primarily reflecting higher costs of sweep accounts and FHLBI advances stemming from the increased interest rate environment.

Average higher-cost money market accounts and time deposits represented an increased percentage of average interest-bearing liabilities during 2024 compared to 2023, with the growth in these deposits reflecting new deposit relationships, increases in existing deposit relationships, and deposit migration.

Growth in the average balance of interest-bearing non-time deposits during 2024 compared to 2023 resulted in a $14.6 million increase in interest expense, while a higher average rate paid on these deposits during 2024 equated to a $10.6 million increase in interest expense.

An increase in the average balance of time deposits during 2024 compared to 2023 resulted in a $12.8 million increase in interest expense, while a higher average rate paid on these deposits during 2024 resulted in an $8.0 million increase in interest expense.

A higher average rate paid on short-term borrowings during 2024 resulted in a $4.6 million increase in interest expense, while growth in the average balance of these borrowings equated to a $0.3 million increase in interest expense.

An increased average rate paid on FHLBI advances during 2024 resulted in a $1.5 million increase in interest expense, while growth in the average balance of advances resulted in a $0.2 million increase in interest expense.

The $0.1 million increase in interest expense on other borrowings resulted almost evenly from growth in, and a higher average rate paid on, these borrowings.

Interest expense decreased $1.3 million during 2025 compared to 2024, totaling $129 million and $130 million in the respective periods.

A decline in the cost of interest-bearing liabilities from 3.38% during 2024 to 3.03% during 2025 resulted in a decrease in interest expense of $17.0 million, while growth in the average balance of these liabilities during 2025 compared to 2024 resulted in an increase in interest expense of $15.7 million.

The reduced average cost of interest-bearing liabilities mainly resulted from decreased costs of money market accounts and time deposits, reflecting the lower 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 interest-bearing liability mix, consisting of average higher-cost money market accounts and time deposits representing an increased percentage of average interest-bearing liabilities, negatively impacted the cost of interest-bearing liabilities during 2025 compared to 2024.

The growth in these deposits reflected new deposit relationships, increases in existing deposit relationships, and deposit migration.

During 2025, interest-bearing liabilities averaged $4.27 billion, representing an increase of $415 million, or 10.8%, from the $3.85 billion average during 2024; average interest-bearing deposits were up $471 million, while average borrowings declined $56.4 million.

Growth in the average balance of interest-bearing non-time deposits during 2025 compared to 2024 resulted in a $12.0 million increase in interest expense, while a lower average rate paid on these deposits during 2025 compared to 2024 resulted in an $11.9 million decrease in interest expense.

An increase in the average balance of time deposits during 2025 compared to 2024 resulted in a $5.4 million increase in interest expense, while a reduced average rate paid on these deposits during 2025 compared to 2024 resulted in a $4.4 million decrease in interest expense.

A lower average rate paid on short-term borrowings during 2025 compared to 2024 resulted in a $0.7 million reduction in interest expense, while growth in the average balance of these borrowings during 2025 compared to 2024 equated to a $0.5 million increase in interest expense.

A decrease in the average balance of FHLBI advances during 2025 compared to 2024 resulted in a decline in interest expense of $2.3 million, while a higher average rate paid on these borrowings during 2025 compared to 2024 resulted in an increase in interest expense of $0.7 million.

The $0.5 million decrease in interest expense on other borrowings in 2025 compared to 2024 resulted from a lower average rate paid on these borrowings, which was partially mitigated by a slight increase in the average balance of these borrowings.

Provision for Credit Losses

Provisions for credit losses of $3.2 million and $7.4 million were recorded during 2025 and 2024, respectively.

The provision expense recorded during 2025 primarily reflected a $1.9 million reserve increase related to changes in the economic forecast, a $1.8 million net increase in specific allocations driven by a $5.5 million allocation for a commercial construction loan relationship that was placed on nonaccrual during the second quarter of 2025, and a $1.5 million net increase in qualitative factor allocations.

The impacts of these factors were partially offset by $2.3 million and $1.3 million reductions in the reserve related to faster residential mortgage and consumer loan prepayment speeds and the associated reduced average lives of the portfolios and changes in baseline loss rates, respectively.

The provision expense recorded during 2024 mainly reflected allocations necessitated by net loan growth, individual allocations made for two deteriorated commercial loan relationships, changes in qualitative factors, and an increased allocation stemming from slower prepayments speeds on residential mortgage loans, which were partially offset by lower loan loss rates.

The provision expense recorded during 2023 primarily reflected allocations necessitated by net loan growth, slower residential mortgage loan prepayment rates and the associated extended average life of the portfolio, and changes in environmental factors reflecting heightened inherent risk in the commercial construction loan portfolio.

Sustained strength in loan quality metrics, including low levels of loan charge-offs, during 2024 and 2023 significantly mitigated the amount of additional reserves imposed by the previously mentioned factors.

Economic forecasts were relatively stable during 2024 and 2023.

Continued strength in loan quality metrics, including low levels of loan charge-offs, during 2025 and 2024 significantly mitigated the amounts of additional reserves imposed by the previously mentioned factors.

Noninterest Income

Noninterest income totaled $41.6 million during 2025, compared to $40.4 million during 2024.

Noninterest income during 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, respectively, while noninterest income during 2023 included gains on the sales of other real estate owned totaling $0.4 million.

Excluding these transactions, noninterest income increased $7.5 million, or 23.8%, in 2024 compared to 2023.

The growth mainly reflected increases in mortgage banking income, treasury management fees, and payroll service fees, along with revenue generated from an investment in a private equity fund.

The higher level of mortgage banking income primarily resulted from increases in the percentage of loans originated with the intent to sell, which equaled approximately 78% in 2024 compared to approximately 53% in 2023, and total loan originations, which were up approximately 25% in 2024 compared to 2023.

The increase in treasury management fees in large part reflected customers’ expanded use of cash management products and services.

The growth in noninterest income related to these factors was partially offset by a decline in interest rate swap income mainly stemming from reduced borrower demand in light of shifting future interest rate expectations.

Credit and debit card income declined marginally in 2024 compared to 2023;

when adjusting for the receipt of a one-time payment from our vendor in association with a contract renewal in 2023, credit and debit card income was up slightly in 2024.

Noninterest income during 2025 included bank owned life insurance death benefit claims of $1.0 million.

Noninterest income during 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 $1.3 million in 2025 compared to 2024.

The higher level of noninterest income primarily reflected increased treasury management fees, mortgage banking income, and payroll services fees.

Growth in treasury management and payroll services fees mainly stemmed from new commercial relationships and successful marketing efforts leading to customers’ expanded use of products and services.

The increase in mortgage banking income primarily resulted from rises in the percentage of loans originated with the intent to sell, which equaled approximately 81% in 2025 compared to approximately 78% in 2024, and total loan originations, which were up approximately 7% in 2025 compared to 2024.

Interest rate swap income declined during 2025 compared to 2024, generally reflecting a lower volume of new swap transactions.

Noninterest Expense

Noninterest expense during 2025 was $136 million, compared to $126 million during 2024.

Overhead costs during 2024 included contributions to The Mercantile Bank Foundation (the “Foundation”) totaling $1.7 million, while overhead costs during 2023 included contributions to the Foundation, a write-down of a former branch facility, and one-time employee benefit and facility-related costs totaling $1.8 million.

Excluding these transactions, the increase in noninterest expense during 2024 primarily resulted from larger salary and benefit costs, reflecting annual merit pay increases, market adjustments, higher residential mortgage lender commissions and incentives, lower residential mortgage loan deferred salary costs, an increased bonus accrual and associated payroll taxes, higher health insurance claims, and increased 401(k) matching contributions.

The increase in residential mortgage lender commissions and incentives mainly stemmed from a higher level of loan production.

Increased data processing costs, primarily reflecting higher transaction volume and software support costs, also contributed to the rise in noninterest expense during 2024.

A reduced credit reserve for unfunded loan commitments, along with lower levels of interest rate swap credit reserves and collateral holding costs, core deposit intangible asset amortization expense, and occupancy costs, during 2024 partially mitigated the increases in overhead costs noted above.

The decrease in occupancy costs mainly reflected lower building rent stemming from branch-related efficiency initiatives.

The increase in noninterest expense during 2025 primarily resulted from higher salary and benefit costs, mainly reflecting annual merit pay increases, market adjustments, and lower residential mortgage loan deferred salary costs.

Costs associated with the acquisition of Eastern Michigan Financial Corporation, growth in data processing costs, primarily reflecting increased software support costs, and higher allocations to the reserve for unfunded loan commitments, largely stemming from an increase in commercial loan commitments, also contributed to the higher level of noninterest expense.

Lower depreciation expense, mainly reflecting facility expansion and leasehold improvement projects becoming fully depreciated during 2024, positively impacted noninterest expense during 2025.

Contributions to The Mercantile Bank Foundation totaled $1.1 million and $1.7 million during 2025 and 2024, respectively.

Federal Income Tax Expense

During 2025, we recorded income before federal income tax of $103 million and a federal income tax expense of $14.7 million, compared to income before federal income tax of $98.3 million and a federal income tax expense of $18.7 million during 2024.

The $1.8 million decrease in federal income tax expense in 2024 compared to 2023 primarily resulted from the lower level of income before federal income tax.

We recorded net benefits from investments in tax credit structures of $0.2 million and $0.1 million during 2024 and 2023, respectively.

The aforementioned bank owned life insurance death benefit claims, substantially all of which were nontaxable, positively impacted the effective tax rate in 2024.

The $4.0 million decrease in federal income tax expense in 2025 compared to 2024 primarily resulted from the acquisition of transferable energy tax credits and the net benefits from investments in low-income housing and historic tax credit structures, which provided for aggregate tax benefits of $3.5 million and $1.8 million, respectively, the impacts of which were partially offset by a higher level of income before federal income tax.

We recorded net benefits from investments in tax credit structures of $0.2 million during 2024.

The recording of the tax benefits positively impacted our effective tax rate, which equaled 14.2% during 2025, compared to 19.0% during 2024.

The aforementioned bank owned life insurance death benefit claims, substantially all of which were nontaxable, positively impacted the effective tax rates in 2025 and 2024.

CAPITAL RESOURCES

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Positively impacting shareholders’ equity during 2025 was a $25.8 million decline in the after-tax net unrealized loss on available for sale securities.

We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies.

Common stock issued in conjunction with the acquisition of Eastern Michigan Financial Corporation totaled $44.9 million.

We and our banks 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 December 31, 2024, our bank’s total risk-based capital ratio was 13.9%, compared to 13.4% at December 31, 2023.

Our bank’s total regulatory capital increased $64.7 million during 2024, primarily reflecting the net impact of net income totaling $89.6 million and cash dividends paid to us aggregating $29.1 million.

Our bank’s total risk-based capital ratio was also impacted by a $272 million increase in total risk-weighted assets, in large part reflecting growth within the commercial lending function.

As of December 31, 2024, our bank’s total regulatory capital equaled $759 million, or approximately $214 million in excess of the amount necessary to attain the 10.0% minimum total risk-based capital ratio, which is among the requirements to be categorized as “well capitalized.”

As of December 31, 2025, Mercantile Bank’s total risk-based capital ratio was 13.8%, compared to 13.9% at December 31, 2024.

Mercantile Bank’s total regulatory capital increased $16.5 million during 2025, primarily reflecting the net impact of net income totaling $98.7 million and cash dividends paid to us aggregating $84.8 million.

Mercantile Bank’s total risk-based capital ratio was also impacted by a $174 million increase in total risk-weighted assets.

As of December 31, 2025, Mercantile Bank’s total regulatory capital equaled $776 million, or approximately $214 million in excess of the amount necessary to attain the 10.0% minimum total risk-based capital ratio, which is among the requirements to be categorized as “well capitalized.” Eastern Michigan Bank’s total risk-based capital ratio was 19.0%, or approximately $26 million in excess of the “well capitalized” threshold, as of December 31, 2025.

We maintain a stock repurchase program, which is discussed in Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report.

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Liquidity is essential to our business.

An inability to maintain sufficient funds through deposits, borrowings, the sales of assets, and other sources could have a material adverse effect on our liquidity.

An inability to maintain sufficient funds through deposits, borrowings, the sale of assets, and other sources could have a material adverse effect on our liquidity.

Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.

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To assist in providing needed funds, we have regularly obtained monies from wholesale funding sources.

Wholesale funds, comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $537 million, or 10.3% of combined deposits and borrowed funds as of December 31, 2024, compared to $636 million, or 13.8% of combined deposits and borrowed funds, as of December 31, 2023.

Sweep accounts declined $108 million during 2024, totaling $122 million as of December 31, 2024.

Wholesale funds, comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $457 million, or approximately 8% of combined deposits and borrowed funds, as of December 31, 2025, compared to $537 million, or about 10% of combined deposits and borrowed funds, as of December 31, 2024.

Sweep accounts increased $111 million during 2025, totaling $232 million as of December 31, 2025.

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Our borrowing line of credit at year-end 2025 totaled $1.08 billion, with remaining availability based on collateral of $777 million.

We also have the ability to borrow up to $70.0 million on a daily basis through correspondent banks using established unsecured federal funds purchased lines of credit;

the average balance of these funds was less than $0.1 million during 2024.

We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an established unsecured federal funds purchased line of credit;

the average balance of these borrowings was less than $0.1 million during 2025.

In contrast, our interest-earning deposit account at the Federal Reserve Bank of Chicago averaged $286 million during 2025.

We have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago.

Based on pledged municipal bonds, we could have borrowed up to $153 million at December 31, 2024.

We have not utilized this line of credit in over 15 years, and we do not plan to access this line of credit in future periods.

Both banks have lines of credit through the Discount Window of the Federal Reserve Bank of Chicago.

Based on pledged municipal bonds, we could have borrowed up to an aggregate $199 million as of December 31, 2025.

Except for periodic line testing, we have not utilized these lines and we do not plan to access these line of credit in future periods.

The following table reflects, as of December 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

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Subordinated notes

Other borrowed money

Premises and equipment leases

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.

At December 31, 2024, we had a total of $2.07 billion in unfunded loan commitments and $26.5 million in unfunded standby letters of credit.

As of December 31, 2025, we had a total of $2.47 billion in unfunded loan commitments and $26.8 million in unfunded standby letters of credit.

Of the total unfunded loan commitments, $2.15 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $296 million were for loan commitments generally expected to be accepted and become funded within the next 12 to 18 months.

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Interest rate risk is the exposure of our financial condition to adverse movements in interest rates.

Inflation risk is the risk that the values of assets or income from investments will be worth less in the future as inflation decreases the value of money.

During 2022 and 2023, there was a pronounced rise in inflation.

As a result, the FOMC significantly increased interest rates in an effort to combat inflation.

As inflation increased, the value of our investment securities, particularly those with fixed rates and longer maturities, declined.

In addition, inflation increased salary and benefit costs, as well as the costs of goods and services we use in our business operations, such as electricity and other utilities, which increased our noninterest expenses.

Furthermore, our customers were also affected by inflation and the rising costs of goods and services used in their households and businesses.

Inflationary pressures started to ease during 2024, prompting the FOMC to lower interest rates by an aggregate 100 basis points during the last four months of the year.

The lower interest rate environment positively impacted the value of our investment securities.

However, inflation levels remain above the FOMC’s stated goal and interest rates remain higher than they were prior to 2022.

Higher than traditional cost increases continue throughout the economy, but at lower levels than experienced in 2022 and 2023.

We derive our income primarily from the excess of interest collected on interest-earning assets over the interest paid on interest-bearing liabilities.

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Mercantile Bank Corporation (the “Company”) as of December 31, 2024 and December 31, 2023, the related statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the “ consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 3, 2025 expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheets of Mercantile Bank Corporation (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of income, comprehensive income (loss), changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Our report dated February 27, 2026, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for the consolidated financial statements.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

The Company's management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

(1) relates to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – General Reserve

Allowance for Credit Losses – Qualitative Adjustment

Critical Audit Matter Description

As described in Notes 1 and 3 to the consolidated financial statements, management’s estimate of the allowance for credit losses (ACL) at December 31, 2025, includes a reserve on collectively evaluated loans.

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During each reporting period, management considers the need to adjust the historical loss rates to reflect the extent to which they 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.

Management’s adjustment for qualitative factors is based on the impact of changes in lending policies and procedures, changes in the nature and volume of the loan portfolio, changes in the experience, ability and depth of lending management and staff, changes in the volume and severity of past due loans, nonaccrual loans and adversely classified loans, changes in the quality of the credit review function, changes in the value of underlying collateral dependent loans, existence and effect of any concentrations of credit and any changes in such, effect of other factors such as competition and legal and regulatory requirements, and historical loss rate information.

Management’s adjustment for qualitative factors is based on the impact of changes in lending policies and procedures;

changes in the nature and volume of the loan portfolio;

changes in the experience, ability, and depth of lending management and staff;

changes in the volume and severity of past-due loans, nonaccrual loans, and adversely classified loans;

changes in the quality of the credit review function;

changes in the value of underlying collateral dependent loans and existence and effect of any concentrations of credit;

and any changes in the effect of other factors, such as competition, legal and regulatory requirements, and historical loss rate information.

Significant judgment was required by management in the selection and measurement of qualitative factor adjustments.

Accordingly, performing audit procedures to evaluate the Company’s estimated ACL involved a high degree of auditor judgment and required significant effort, including the involvement of professionals with specialized skill and knowledge.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the Company’s estimate of the ACL included, but were not limited to, the following:

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We obtained an understanding of management’s process for determining the need for qualitative factor adjustments, identifying appropriate factors, and measuring the direction and magnitude of the adjustment.

We evaluated management's rationale for determining qualitative adjustments were relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management.

Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources.

We assessed changes in qualitative factors against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments.

We performed an independent calculation of the expected credit losses based on company specific loss history over the expected remaining life.

/s/ Plante & Moran, PLLC

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Grand Rapids, Michigan

March 3, 2025

February 27, 2026

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the criteria established in the COSO framework.

We also have audited the accompanying consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”), in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB").

Our report dated March 3, 2025, expresses an unqualified opinion.

We also have audited the accompanying consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”), in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB").

Our report dated February 27, 2026, expresses an unqualified opinion.

Basis for Opinion

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Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws, the applicable rules and regulations of the Securities and Exchange Commission, and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Grand Rapids, Michigan

March 3, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Mercantile Bank Corporation

Grand Rapids, Michigan

Opinion on the Consolidated Financial Statements

We have audited the accompanying income and comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2022 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, P.C.

BDO USA, P.C.

We served as the Company's auditor from 2006 to 2023.

Grand Rapids, Michigan

March 3, 2023

February 27, 2026

REPORT BY MERCANTILE BANK CORPORATION’S MANAGEMENT

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Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to financial statement preparation.

On December 31, 2025, the Company completed the merger with Eastern Michigan Financial Corporation.

The Company is in the process of evaluating the existing controls and procedures of Easter Michigan Financial Corporation and integrating Eastern Michigan Financial Corporation into the Company’s internal controls over financial reporting.

In accordance with the SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal controls over financial reporting for the year in which the acquisition is completed, the Company has excluded Eastern Michigan Financial Corporation from the assessment of the effectiveness of internal controls over financial reporting as of December 31, 2025.

Eastern Michigan Financial Corporation represented 8.4% of the Company’s total assets as of December 31, 2025.

Management assessed the Company’s system of internal control over financial reporting that is designed to produce reliable financial statements presented in conformity with generally accepted accounting principles as of December 31, 2025.

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1,102,230 730,352

Federal Home Loan Bank stock

21,513 21,513

Mortgage loans held for sale

9 unchanged sentences

72,656 49,473

Core deposit intangible

217,954 169,909

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Noninterest income

Service charges on deposit and sweep accounts

6,842 4,954 5,952

Mortgage banking activities

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9,207 8,821 8,914

Interest rate swap program fees

Service charges on deposit and sweep accounts

8,134 6,842 4,954

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3,293 2,555 1,500

Interest rate swap program fees

1,957 3,210 3,946

2,523 3,602 2,725

Total noninterest income

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83,198 77,924 68,801

8,643 9,150 8,362

Furniture and equipment rent, depreciation and maintenance

3,716 3,464 3,614

Data processing

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8,511 8,643 9,150

Furniture and equipment rent, depreciation and maintenance

3,357 3,716 3,464

FDIC insurance costs

2,715 2,497 2,258

1,664 1,604 1,565

Charitable foundation contributions

1,066 1,708 666

Acquisition costs

Other expense

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$ 0 $ 290,436 $ 216,313 $ ( 65,341 ) $ 441,408

Adoption of ASU 2016-13

Employee stock purchase plan ( 1,410 shares)

Dividend reinvestment plan ( 27,306 shares)

Stock option exercises, net ( 1,355 shares)

Stock grants to directors for retainer fees ( 11,529 shares)

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

14,854 14,854

Balances, December 31, 2024

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Stock-based compensation expense

Common stock issued to acquire Eastern Michigan Financial Corp.

( 924,999 shares)

44,909 44,909

Cash dividends ($ 1.50 per common share)

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

25,830 25,830

Balances, December 31, 2025

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3,200 7,400 7,700

Deferred income tax benefit

Deferred income tax expense (benefit)

2,085 ( 397 ) ( 2,036 )

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Net (gain) loss from sale and write-downs on former bank premises

Net (gain) loss from sales and disposals of premises and equipment

13 471 ( 36 )

Net loss from sales and disposals of premises and equipment

Earnings on bank owned life insurance

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Proceeds from sale of mortgage loans

Proceeds from Federal Home Loan Bank stock redemption

Net cash received from acquisition of Eastern Michigan Financial Corp.

Purchases of Federal Home Loan Bank stock

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0 ( 7,000 ) ( 3,500 )

Proceeds from bank owned life insurance death benefits claim

Proceeds from bank owned life insurance death benefit claims

2,790 1,357 0

Purchases of premises and equipment and lease activity

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Proceeds from sales of former bank premises

283 598 2,994

Proceeds from sales of foreclosed assets

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Cash flows from financing activities

Net (decrease) increase in time deposits

Net increase in time deposits

5,048 159,727 422,781

3 unchanged sentences

110,770 ( 108,213 ) 35,394

Proceeds from term note issuance

Proceeds from Federal Home Loan Bank advances

2 unchanged sentences

( 80,862 ) ( 90,827 ) ( 80,353 )

Net proceeds from subordinated notes issuance

Proceeds from stock option exercises, net of cashless exercises

Employee stock purchase plan

2 unchanged sentences

( 23,951 ) ( 22,473 ) ( 21,004 )

Net cash (for) from financing activities

Net cash from financing activities

168,045 586,795 363,080

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Noncash financing and investing activities:

Common stock issued in connection with acquisition of Eastern Michigan Financial Corp.

Transfers from loans to foreclosed assets

Transfers from bank premises to other real estate owned

Transfers from premises and equipment to other assets

*Federal income taxes include amounts paid for the acquisition of transferable federal income tax credits.

See accompanying notes to consolidated financial statements.

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Principles of Consolidation :

The consolidated financial statements include the accounts of Mercantile Bank Corporation (“Mercantile”) and its subsidiaries, Mercantile Bank (“our bank”) and Mercantile Community Partners LLC ("MCP"), and of Mercantile Insurance Center, Inc.

(“our insurance company”), a subsidiary of our bank, after elimination of significant intercompany transactions and accounts.

The consolidated financial statements include the accounts of Mercantile Bank Corporation (“Mercantile”) and its subsidiaries, Mercantile Bank and Eastern Michigan Bank (collectively "our banks"), and Mercantile Community Partners LLC ("MCP"), and of Mercantile Insurance Center, Inc.

(“our insurance company”), a subsidiary of Mercantile Bank, after elimination of significant intercompany transactions and accounts.

Mercantile has five separate business trusts:

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Nature of Operations :

Mercantile was incorporated on July 15, 1997 to establish and own the bank based in Grand Rapids, Michigan.

Our bank began operations on December 15, 1997.

We completed the merger of Firstbank Corporation (“Firstbank”), a Michigan corporation with approximately $ 1.5 billion in total assets and 46 branch locations, into Mercantile as of June 1, 2014.

Mercantile is a financial holding company whose principal activity is the ownership and management of our bank.

Our bank is a community-based financial institution.

Our bank’s primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial loans, residential mortgage loans, and instalment loans.

Mercantile was incorporated on July 15, 1997, to establish and own Mercantile Bank based in Grand Rapids, Michigan.

Mercantile Bank began operations on December 15, 1997.

Mercantile Bank completed the merger of Firstbank Corporation, a Michigan corporation with approximately $ 1.5 billion in total assets and 46 branch locations, into Mercantile as of June 1, 2014.

On December 31, 2025, Mercantile completed the merger of Eastern Michigan Financial Corporation, and its wholly owned banking subsidiary, Eastern Michigan Bank, with approximately $ 572 million in total assets and 11 branch locations.

Mercantile will operate for a period of time as a two -bank holding company.

The newly acquired Eastern Michigan Bank will operate alongside Mercantile Bank until the first quarter of 2027, at which time Mercantile plans to consolidate Eastern Michigan Bank into Mercantile Bank.

Mercantile is a financial holding company whose principal activity is the ownership and management of Mercantile Bank and Eastern Michigan Bank.

Both Mercantile Bank and Eastern Michigan Bank are community-based financial institutions.

Their primary deposit products are checking, saving, and term certificate accounts, and their primary lending products are commercial loans, residential mortgage loans, and instalment loans.

Substantially all loans are secured by specific items of collateral, including business assets, real estate or consumer assets.

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We have no material foreign loans or significant overdraft balances.

Our bank’s loan accounts and retail deposits are primarily with customers located in the communities in which we have bank office locations.

As an alternative source of funds, our bank has also issued certificates of deposit to depositors outside of its primary market areas.

Our banks' loan accounts and retail deposits are primarily with customers located in the communities in which we have bank office locations.

As an alternative source of funds, our banks have also issued certificates of deposit to depositors outside of their primary market areas.

Our insurance company acquired an existing shelf insurance agency effective April 15, 2002.

An Agency and Institution Agreement was entered into among our insurance company, our bank and Hub International for the purpose of providing programs of mass marketed personal lines of insurance.

An Agency and Institution Agreement was entered into among our insurance company, Mercantile Bank and Hub International for the purpose of providing programs of mass marketed personal lines of insurance.

Insurance product offerings include private passenger automobile, homeowners, personal inland marine, boat owners, recreational vehicle, dwelling fire, umbrella policies, small business and life insurance products, all of which are provided by and written through companies that have appointed Hub International as their agent.

1 unchanged sentence

We have evaluated subsequent events for potential recognition and/or disclosure through the date these financial statements were issued.

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.

Pursuant to Financial Accounting Standards Codification 280, Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision makers in determining how to allocate resources and assessing performance.

Our chief operating decision makers, which include our Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, evaluate interest and noninterest income streams and credit losses from our various products and services, while expense activities, including interest expense and noninterest expense, are managed, and financial performance is evaluated, on a Company-wide basis.

As a result, detailed profitability information for each interest and noninterest income stream is not used by our chief operating decision makers to allocate resources or in assessing performance.

Rather, our chief operating decision makers use consolidated net income to assess performance by comparing it to and monitoring against budgeted and prior year results.

This information is used to manage resources to drive business and net income growth, including investment in key strategic priorities, as well as determine our ability to return capital to shareholders.

Segment assets represent total assets on our Consolidated Balance Sheets and segment net income represents net income on our Consolidated Statements of Income.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates :

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Cash flows are reported net for customer loan and deposit transactions, interest-earning deposits invested with other financial institutions and short-term borrowings with maturities of 90 days or less.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Debt Securities :

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Any impairment that has not been recorded through an allowance is recognized in other comprehensive income.

Changes in the allowance are recorded as provisions for (or reversal of) credit loss expense.

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.

Changes in the allowance are recorded as provisions for (or reversals of) credit loss expense.

Losses are charged against the allowance when the collectibility of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

At December 31, 2025 , there was no allowance related to the available for sale debt securities portfolio.

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Management has made the accounting policy election to exclude accrued interest receivable on available for sale securities from the estimate of credit losses as accrued interest is written off in a timely manner when deemed uncollectible.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Federal Home Loan Bank Stock :

Our bank owns stock of the Federal Home Loan Bank of Indianapolis ("FHLBI").

The FHLBI is a governmental sponsored entity that requires banks to invest in their nonmarketable stock as a condition of membership.

FHLBI members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.

FHLBI stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

The ability to redeem the shares owned is dependent on the redemption practice of the FHLBI.

Dividends are recorded in income on the ex-dividend date.

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 adjusted for partial charge-offs and the allowance, net of deferred loan fees and costs.

Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding.

1 unchanged sentence

Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

The December 31, 2025, acquisition of Eastern Michigan Bank resulted in the recognition of $ 1.5 million of net purchased loan discounts.

Purchased loan discounts were measured at the time of acquisition based upon the difference between the initial amortized cost basis and the par value of the loan.

The premiums and discounts will be amortized into interest income over the life of the loans.

Interest income is accrued on the unpaid principal balance.

23 unchanged sentences

Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related mortgage loan sold, which is reduced by the cost allocated to the servicing right.

We generally lock in the sale price to the purchaser of the mortgage loan at the same time we make an interest rate commitment to the borrower.

Year-end mortgage loans held for sale were as follows:

9 unchanged sentences

The net gain or loss on derivatives is included in mortgage banking activities in the Consolidated Statements of Income.

The net balance of mortgage loan derivatives aggregated to an asset of $ 0.1 million at December 31, 2024 and a liability of less than $ 0.1 million as of December 31, 2023 .

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The net balance of mortgage loan derivatives aggregated to an asset of $ 0.3 million as of December 31, 2025 , and an asset of $ 0.1 million as of December 31, 2024 .

Mortgage Banking Activities :

Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold.

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.

Income derived from mortgage banking activities include the net gain on sale of mortgage loans, originated mortgage servicing rights, and servicing fee income net of mortgage servicing rights amortization expense.

The net gain on sale of mortgage loans represents the premium received in excess of the unpaid principal balance plus net origination fees.

Originated mortgage loan servicing rights are recorded at fair value at the time of sale and amortized in proportion to, and over the period of, estimated net servicing revenues.

At each period end, 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.

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.

Accounting for mortgage servicing rights is based on the class of mortgage servicing rights.

We have identified four classes of mortgage servicing rights based on the initial term of the underlying mortgage loans:

1 unchanged sentence

We distinguish between these classes based on the differing sensitivities to the change in value from changes in mortgage interest rates.

Mortgage servicing rights are initially recorded at fair value, and then are accounted for using the amortization method.

Netted against mortgage banking income, mortgage servicing rights amortization expense is reported as noninterest income in the Consolidated Statements of Income.

Mortgage servicing rights amortization is determined by amortizing the mortgage servicing rights balance in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans.

Any impairment of a grouping is reported as a valuation allowance.

Servicing fees are earned for servicing mortgage loans and are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

Interest rate risk, prepayment risk and default risk are inherent in mortgage servicing rights valuations.

4 unchanged sentences

Because of these risks, discount rates and prepayment speeds are used to estimate the fair value of mortgage servicing rights.

Troubled Debt Restructurings :

The accounting guidance for troubled debt restructurings by creditors in Subtopic 310 - 40, Receivables – Troubled Debt Restructurings by Creditors was eliminated upon our adoption of ASU No.

2022 - 02 Financial Instruments – Credit Losses (Topic 326 ):

Troubled Debt Restructurings and Vintage Disclosures, which was effective January 1, 2023.

2022 - 02 eliminated troubled debt restructurings recognition and measurement guidance and, instead, requires that entities evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

In accordance with previous accounting guidance, loans modified as troubled debt restructurings were, by definition, considered to be impaired loans.

Impairment for these loans were measured on a loan-by-loan basis.

Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan was modified as a troubled debt restructuring, the allowance may have been impacted by the difference between the results of these two measurement methodologies.

Loans modified as troubled debt restructurings that subsequently default were factored into the determination of the allowance in the same manner as other defaulted loans.

Our bank has chosen to continue to individually assess loans previously identified as troubled debt restructurings for allowance for credit losses purposes;

thus, there was no change to the allowance for credit losses upon adoption.

MERCANTILE BANK CORPORATION

38 unchanged sentences

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Purchased loans are recorded at fair value at the time of acquisition and distinguished between purchased seasoned loans ("PSL"), purchased credit deteriorated loans ("PCD loans"), and non-seasoned new acquisitions.

PSL are loans purchased at least 90 days after its original origination date and without significant credit deterioration.

PCD loans are acquired loans that have experienced a more-than-insignificant decline in credit quality since their origination.

We considered all loans that were currently 60 days or more past due, ever on nonaccrual status, had ever been past due three or more times, consumer loans with borrower credit scores below 600, or commercial loans rated monitor, special mention, substandard or doubtful to be PCD loans.

There were no non-seasoned new acquisition loans during 2025, 2024 and 2023.

PSL and PCD loans are accounted for using the gross-up approach prescribed in Accounting Standards Codification 326, Financial Instruments - Credit Losses.

The gross-up approach requires recognition of an allowance for the estimate of credit losses at the acquisition date.

The allowance is recorded with an offsetting gross-up adjustment to the purchase price of the acquired financial asset.

Accrued interest receivable on loans totaling $ 17.5 million and $ 17.3 million as of December 31, 2025 and 2024 , respectively, is included in other assets on the Consolidated Balance Sheets.

25 unchanged sentences

Control over transferred assets is deemed to be surrendered when:

( 1 ) the assets have been isolated from our bank and put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and ( 3 ) our bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

( 1 ) the assets have been isolated from our banks and put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and ( 3 ) our banks do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Our transfers of financial assets are generally limited to commercial loan participations sold and residential mortgage loans sold in the secondary market.

10 unchanged sentences

If fair value subsequently declines, a valuation allowance is recorded through noninterest expense, as are collection and operating costs after acquisition.

We had no foreclosed assets as of December 31, 2024.

Foreclosed assets, included in other assets in the Consolidated Balance Sheets, totaled $ 0.2 million as of December 31, 2023 .

We had no foreclosed assets as of December 31, 2025 and 2024.

Bank Owned Life Insurance:

Our bank has purchased life insurance policies on certain key officers.

Our banks have purchased life insurance policies on certain key officers.

Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

5 unchanged sentences

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, 2025;

therefore, goodwill is considered not impaired.

therefore, goodwill was considered not impaired.

Subsequent to the analysis of goodwill, on December 31, 2025, we acquired Eastern Michigan Financial Corporation, resulting in the recognition of $ 23.2 million of goodwill.

Goodwill recognized from the acquisition of Eastern Michigan Financial Corporation is further discussed in Note 17 - Business Combinations.

Repurchase Agreements :

Our bank sells certain securities under agreements to repurchase.

Our banks sell certain securities under agreements to repurchase.

The agreements are treated as collateralized financing transactions, with the obligations to repurchase the securities sold reflected as liabilities and the securities underlying the agreements remaining in assets in the Consolidated Balance Sheets.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial Instruments and Loan Commitments :

8 unchanged sentences

Fair value of restricted stock awards is based upon the quoted market price of the common stock on the date of grant.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue from Contracts with Customers :

9 unchanged sentences

2025 2024 2023

Service charges on deposit and sweep accounts

$ 6,842 $ 4,954 $ 5,952

Credit and debit card fees

$ 9,207 $ 8,821 $ 8,914

Service charges on deposit and sweep accounts

8,134 6,842 4,954

Payroll processing

6 unchanged sentences

Service charges on deposit and sweep accounts are withdrawn from the customer account balance.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Credit and Debit Card Fees:

7 unchanged sentences

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.

We earn fees by providing a variety of other services to our customers, such as wire transfers, check ordering, sales of cashier checks, and rentals of safe deposit boxes.

Generally, fees are recognized and collected daily, concurrently with the point in time we fulfill the customer request.

7 unchanged sentences

A valuation allowance, if needed, reduces deferred income tax assets to the amount expected to be realized.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial Instruments :

8 unchanged sentences

In the event of a net loss, our unvested stock awards are excluded from the calculations of both basic and diluted earnings per share.

There were no dilutive shares outstanding during the years ended December 31, 2025, 2024 and 2023 .

Weighted average common shares outstanding were 16,237,974 , 16,130,696 , and 16,015,678 during the years ended December 31, 2025, 2024 and 2023 .

Comprehensive Income (Loss) :

8 unchanged sentences

$ ( 23,995 ) $ ( 49,825 ) $ ( 50,487 )

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Derivatives :

11 unchanged sentences

Recent Accounting Changes Adopted :

2023 - 07, Segment Reporting (Topic 323 ):

Improvements to Reportable Segment Disclosures.

This ASU enhances disclosures of significant segment expenses by requiring entities to disclose significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported under certain conditions.

This ASU took effect for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

We have adopted the standard and included the required disclosures in our financial statements.

2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

This ASU modifies the rules on income tax disclosures to require entities to disclose ( 1 ) specific categories in the rate reconciliation, ( 2 ) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and ( 3 ) income tax expense or benefit from continuing operations (separated by federal, state and foreign).

This ASU also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes.

This ASU takes effect in reporting periods beginning after December 15, 2024, with early adoption permitted.

Accounting Standards Updated No.

2025 - 08, Financial Instruments - Credit Losses (Topic 326 ):

Purchased Loans.

This update expands the population of acquired financial instruments subject to the gross-up approach in Topic 326.

In accordance with the amendments in this update, loans (excluding credit cards) acquired without credit deterioration and deemed "seasoned" are purchased seasoned loans and accounted for using the gross-up approach at acquisition.

This update takes effect for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods with adoption being applied prospectively to loans that are acquired on or after the initial application date.

We have adopted the standard and included the required disclosures in our financial statements.

6 unchanged sentences

Cost Gains Losses Value

Treasury notes and bonds

$ 55,501 $ 0 $ 0 $ 55,501

Government agency debt obligations

8 unchanged sentences

51,127 0 0 51,127

$ 1,132,603 $ 6,483 $ ( 36,856 ) $ 1,102,230

Government agency debt obligations

14 unchanged sentences

Description of Securities

Treasury notes and bonds

$ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Government agency debt obligations

34 unchanged sentences

The contractual maturity is utilized for U.S.

Treasury notes and bonds, U.S.

Government agency debt obligations and municipal bonds.

14 unchanged sentences

51,127 51,127

$ 1,132,603 $ 1,102,230

No securities were sold during the last three years.

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $ 252 million and $ 219 million at December 31, 2025 and December 31, 2024 , respectively, with estimated market values of $ 249 million and $ 209 million at the respective dates.

We had no securities issued by all other states and their political subdivisions as of December 31, 2024 or December 31, 2023 .

Securities issued by all other states and their political subdivisions had both a combined amortized cost and estimated fair value of $ 31.3 million as of December 31, 2025 .

We had no securities issued by all other states and their political subdivisions as of December 31, 2024.

Total securities of any other specific issuer, other than the U.S.

3 unchanged sentences

The carrying value of U.S.

Government agency debt obligations that are pledged to secure specific customer deposits was $ 11.7 million as of December 31, 2024.

We had no U.S.

Government agency debt obligations pledged to specific customer deposits as of December 31, 2023.

Investments in FHLBI stock are restricted and may only be resold to, or redeemed by, the issuer.

Government agency debt obligations that are pledged to secure specific customer deposits was $ 12.6 million and $ 11.7 million as of December 31, 2025 and 2024 , respectively.

MERCANTILE BANK CORPORATION

31 unchanged sentences

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.

During 2023, we changed the segmentation of credit cards to business customers from other consumer loans to commercial and industrial loans.

This division of the credit card balances was done to better align the risk characteristics of the portfolio, which include the customer type and source of repayment.

Credit cards to business customers totaled $ 19.1 million and $ 17.8 million as of December 31, 2024 and 2023 , respectively.

We also changed the segmentation of home equity lines of credit from 1 - 4 family mortgage loans to other consumer loans during the year ended December 31, 2023.

Home equity lines of credit share many of the same risk characteristics of both segments, however, losses are primarily driven by a lack of underlying collateral value during distressed situations as many of the loans are in a second lien position, and thus, best segmented within the other consumer portfolio.

Home equity lines of credit totaled $ 52.0 million and $ 38.1 million as of December 31, 2024 and 2023 , respectively.

MERCANTILE BANK CORPORATION

57 unchanged sentences

$ 2,157 $ 449 $ 2,922 $ 5,528 $ 4,816,360 $ 4,821,888 $ 0

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

56 unchanged sentences

As of December 31, 2025 and 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 in 2024 , $ 0.2 million in 2023 and less than $ 0.1 million in 2022 , reflecting the collection of interest at the time of principal pay-off.

Interest income recognized on nonaccrual loans totaled $ 1.0 million in 2025 , $ 0.3 million in 2024 and $ 0.2 million in 2023 , reflecting the collection of interest at the time of principal pay-off.

MERCANTILE BANK CORPORATION

16 unchanged sentences

Commercial and industrial

$ 2,110 $ 1,732

Vacant land, land development and residential construction

8 unchanged sentences

Total nonaccrual loans:

$ 2,767 $ 1,732

Total nonaccrual loans

18 unchanged sentences

Commercial and industrial

$ 5,775 $ 2,051

Vacant land, land development and residential construction

8 unchanged sentences

Total nonaccrual loans:

$ 6,272 $ 2,083

Total nonaccrual loans

216 unchanged sentences

NOTE 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.

Mercantile Bank uses a migration to loss methodology to determine historical loss rates for commercial loans given the comprehensive loan grading process employed by Mercantile 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.

1 unchanged sentence

We determined that the look-back period commencing on January 1, 2011 through the reporting date was reasonable and appropriate for the calculation of historical loss rates for both December 31, 2025 and 2024 .

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.

Mercantile Bank's 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 in which we believe will impact anticipated customer behavior including changes in interest rates, economic conditions, and underlying property valuations.

For the commercial loan portfolio segments, we assumed a 2 % prepayment speed as of both December 31, 2025 and 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 decreased the prepayment speed from 9.0 % as of December 31, 2023 to 7.8 % as of December 31, 2024 .

This decrease extended the average lives of the portfolios in which the loss rates were applied, resulting in an increase to the allowance of $ 1.3 million.

This change in assumption was driven by higher long-term interest rates and the composition of the underlying portfolios.

For the retail 1 - 4 family mortgage and retail other consumer portfolios, we increased the prepayment speed from 7.8 % as of December 31, 2024 to 9.5 % as of December 31, 2025 .

This increase shortened the average lives of the portfolios in which the loss rates were applied, resulting in a decrease to the allowance of $ 2.3 million.

This change in assumption was driven by lower long-term interest rates and the compositions of the underlying portfolios.

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.

2 unchanged sentences

The economic forecasts used for our December 31, 2025 and 2024 allowance calculations reflected allowance balance reductions of $ 0.3 million and $ 2.2 million, respectively.

The allowance for PSL and PCD loans acquired from the acquisition of Eastern Michigan Bank were measured at the loan segment level using proxy expected lifetime loss rates adjusted for qualitative risk factors, including lending management experience, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors, and economic conditions not already captured.

Individual loans exhibiting unique risk characteristics, which differentiate the loans from other loans within the loan segments and are evaluated for expected credit losses on an individual basis, totaled $ 7.9 million and $ 7.4 million as of December 31, 2025 and 2024 , respectively.

5 unchanged sentences

The allowance for credit losses for the year ended December 31, 2025 is as follows:

land real estate –

Commercial and real estate – real estate – and 1 - 4 Other

real estate –

(Dollars in thousands)

industrial construction occupied occupied rental mortgages loans Unallocated Total

Allowance for credit losses:

Beginning balance

4 unchanged sentences

769 5 6 0 17 348 109 0 1,254

Initial allowance on PSL

283 496 569 323 20 289 313 0 2,293

Initial allowance on PCD loans

16 28 37 6 0 12 6 0 105

Ending balance

6 unchanged sentences

industrial construction occupied occupied rental mortgages loans Unallocated Total

Allowance for credit losses:

Beginning balance

$ 7,441 $ 384 $ 7,186 $ 9,852 $ 3,184 $ 18,986 $ 2,881 $ 0 $ 49,914

Credit risk reclassifications

90 0 0 0 0 ( 697 ) 607 0 0

Balances, December 31, 2022 after reclassifications

10,293 490 5,914 9,242 2,191 13,330 767 19 42,246

Provision for credit losses

10 unchanged sentences

land real estate –

Commercial and real estate – real estate – and Home

Commercial and real estate – real estate – and Other

(Dollars in thousands)

industrial construction occupied occupied rental mortgages and other Unallocated Total

Allowance for credit losses:

industrial construction occupied occupied rental mortgages loans Unallocated Total

Beginning balance

$ 10,203 $ 490 $ 5,914 $ 9,242 $ 2,191 $ 14,027 $ 160 $ 19 $ 42,246

Adoption of ASU 2016-13

Credit risk reclassifications

90 0 0 0 0 ( 697 ) 607 0 0

Balances, December 31, 2022 after reclassifications

10,293 490 5,914 9,242 2,191 13,330 767 19 42,246

Provision for credit losses

21 unchanged sentences

Real estate – non-owner occupied

0 0 0 0 10,894 0

Real estate – multi-family and residential rental

6 unchanged sentences

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

The following table presents the period-end 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:

The following table presents the period-end amortized cost basis of loans that have been modified in the past twelve months as of December 31, 2025, to borrowers experiencing financial difficulty by payment status and loan segment:

(Dollars in thousands)

27 unchanged sentences

$ 62,468 $ 53,427

Depreciation expense totaled $ 6.0 million in 2024 , 2023 and 2022 .

Depreciation expense totaled $ 5.2 million for 2025 , and $ 6.0 million for both 2024 and 2023 .

We enter into facility leases in the normal course of business.

As of December 31, 2025 , we were under lease contracts for eleven of our branch facilities.

The leases have maturity dates ranging from November, 2025 through May, 2048, with a weighted average life of 8.8 years as of December 31, 2024 .

The leases have maturity dates ranging from August, 2026 through May, 2048, with a weighted average life of 9.4 years as of December 31, 2025 .

All of our leases have multiple three - to five -year extensions;

33 unchanged sentences

$ 12,475 $ 11,343

Acquired from Eastern Michigan Bank

Amortized to expense

23 unchanged sentences

310,227 5.9 221,900 4.7 39.8

Time, under $100,000

207,534 4.4 175,741 4.5 18.1

Time, $100,000 and over

Time deposits

848,844 16.1 807,517 17.2 5.1

13 unchanged sentences

In two to three years

14,315 22,830

In three to four years

6 unchanged sentences

NOTE 6 – DEPOSITS (Continued)

The following table depicts the maturity distribution for time deposits with balances of $100,000 or more at year end:

(Dollars in thousands)

Up to three months

$ 218,666 $ 167,535

Three months to six months

185,327 127,344

Six months to twelve months

291,179 210,915

Over twelve months

54,510 115,953

Total certificates of deposit

$ 749,682 $ 621,747

Time deposits of more than $250,000 totaled $ 551 million and $ 570 million at year-end 2025 and 2024 , respectively.

18 unchanged sentences

Repurchase agreements are offered principally to certain large deposit customers.

NOTE 8 - FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

NOTE 8 - OTHER BORROWINGS

FHLBI bullet advances totaled $ 300 million at December 31, 2025 , and were expected to mature at varying dates from January 2026 through June 2030, with fixed rates of interest from 0.90 % to 4.50 % and averaging 3.27 %.

FHLBI bullet advances totaled $ 360 million at December 31, 2024 , and were expected to mature at varying dates from January 2025 through January 2029, with fixed rates of interest from 0.70 % to 4.54 % and averaging 3.10 %.

FHLBI bullet advances totaled $ 440 million at December 31, 2023 , and were expected to mature at varying dates from January 2024 through December 2028, with fixed rates of interest from 0.55 % to 5.05 % and averaging 2.93 %.

Maturities of FHLBI bullet advances as of December 31, 2025 were as follows:

(Dollars in thousands)

MERCANTILE BANK CORPORATION

1 unchanged sentence

December 31, 2025

NOTE 8 - FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES (Continued)

Maturities of FHLBI bullet advances as of December 31, 2024 were as follows:

(Dollars in thousands)

NOTE 8 - OTHER BORROWINGS (Continued)

FHLBI amortizing advances totaled $ 26.2 million and $ 27.1 million as of December 31, 2025 and 2024 , respectively, with an average fixed rate of 2.52 % and maturities in 2042.

3 unchanged sentences

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 December 31, 2025 totaled $ 1.08 billion, with remaining availability based on collateral of $ 777 million.

On December 15, 2021, we entered into Subordinated Note Purchase Agreements with certain institutional accredited investors pursuant to which we issued and sold $ 75.0 million in aggregate principal amount of 3.25 % fixed-to-floating rate subordinated notes (“Notes”).

The Notes have a stated maturity of January 30, 2032, and are redeemable by us at our option, in whole or in part, on or after January 30, 2027 on any interest payment date at a redemption of price of 100 % of the principal amount of the Notes being redeemed.

The Notes are not subject to redemption at the option of the holder.

The Notes will bear interest at a fixed rate of 3.25 % per year until January 29, 2027.

Commencing on January 30, 2027 and through the stated maturity date of January 30, 2032, the interest rate will reset quarterly at a variable rate equal to the then-current Three-Month Term SOFR plus 212 basis points.

On December 15, 2021, we injected $ 70.0 million of the issuance proceeds into Mercantile Bank as an increase to equity capital.

On January 14, 2022, we issued an additional $ 15.0 million of Notes to certain institutional accredited investors, reflecting an expansion of the $ 75.0 million issuance completed on December 15, 2021.

The additional $ 15.0 million issuance was completed on the same terms as the prior offering and under the existing indenture.

On January 14, 2022, we injected $ 15.0 million of the issuance proceeds into Mercantile Bank as an increase to equity capital.

Our unamortized debt issuance costs were $ 0.3 million and $ 0.7 million as of December 31, 2025 and 2024 , respectively.

On December 24, 2025, we entered into a credit agreement with U.S.

Bank National Association for a $ 30.0 million term note.

The term loan bears interest at an annual rate equal to 1.70 % plus the greater of (a) zero percent ( 0.0 %) and (b) the one -month forward-looking term rate based on SOFR.

Interest and principal are payable beginning March 15, 2026, and on the same date of each third month thereafter, plus a final payment equal to all unpaid interest and principal.

Principal shall be paid in installments of $ 2.5 million each.

The term loan matures on December 24, 2028.

Mercantile is permitted to prepay the term note evidencing the term loan in full or in part at any time without indemnity, premium or penalty.

NOTE 9 - FEDERAL INCOME TAXES

Pretax income is entirely related to domestic activities;

we did not have any foreign operations, tax expense or tax benefits.

The consolidated income tax expense was as follows:

3 unchanged sentences

$ 12,655 $ 19,090 $ 22,518

Deferred benefit

Deferred expense (benefit)

2,085 ( 397 ) ( 2,036 )

6 unchanged sentences

(Dollars in thousands)

Tax at statutory rate

statutory rate

$ 21,734 21.0 % $ 20,640 21.0 % $ 21,567 21.0 %

Increase (decrease) from

Tax-exempt interest

Tax credits net of proportional amortization and tax losses

( 1,929 ) ( 1.9 ) ( 266 ) ( 0.3 ) 24 0.0

Discount of purchased tax credits

( 3,525 ) ( 3.4 ) 0 NA 0 NA

Non-taxable or non-deductible items

Tax-exempt interest, net of interest expense disallowance

( 1,265 ) ( 1.2 ) ( 1,027 ) ( 1.0 ) ( 862 ) ( 0.8 )

Bank owned life insurance

4 unchanged sentences

$ 14,740 14.2 % $ 18,693 19.0 % $ 20,482 19.9 %

$ 18,693 19.0 % $ 20,482 19.9 % $ 14,727 19.6 %

The statutory tax rate was 21 % for 2025 , 2024 and 2023 .

We did not record any state income taxes.

Significant components of deferred tax assets and liabilities, included in other assets on our Consolidated Balance Sheets, as of December 31, 2025 and 2024 were as follows:

7 unchanged sentences

Unrealized loss on securities

13,245 13,420

Lease liability

Net operating loss carryforward

Deferred tax asset

5 unchanged sentences

Right of use lease asset

Securities discount accretion

Business combination adjustments

2 unchanged sentences

$ 11,258 $ 20,209

As of December 31, 2025, we had net operating loss carryforwards of $ 7.3 million related to the acquisition of Eastern Michigan Financial Corporation.

The ability to utilize the net operating loss in future periods is limited based on the value of Eastern Michigan Financial Corporation's value at the time of the ownership change and applicable federal rates.

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefits related to such assets will not be realized.

We determined that no valuation allowance was required at year-end 2025 or 2024 .

We had no unrecognized tax benefits at any time during 2024 or 2023 and do not anticipate any significant increase in unrecognized tax benefits during 2025 .

We had no unrecognized tax benefits at any time during 2025 or 2024 .

Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in our income tax accounts;

no such accruals existed at any time during 2025 or 2024 .

federal income tax returns are no longer subject to examination for all years before 2021.

We are no longer no longer subject to examination by taxing authorities for years before 2022.

MERCANTILE BANK CORPORATION

4 unchanged sentences

Stock-based compensation, reported as noninterest expense in the Consolidated Statements of Income, totaled $ 3.5 million, $ 3.3 million and $ 3.4 million in 2025, 2024 and 2023, 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.

Grants included on the following tables were made under the various Stock Incentive Plans as follows:

Stock Incentive Plan of 2020

Restricted stock grants in 2021 and 2022

Stock Incentive Plan of 2023

Restricted stock grants in 2023

In addition, stock grants to directors as retainer payments during the years 2020 through 2022 were from the Stock Incentive Plan of 2020, while stock grants to directors as retainer payments during 2024 and 2023 were from the Stock Incentive Plan of 2023.

Under the Stock Incentive Plan of 2020 and 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.

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.

Incentive awards that are stock options or stock appreciation rights are granted with an exercise price not less than the closing price of our common stock on the date of grant.

15 unchanged sentences

Of the restricted stock shares granted in 2025 and 2023 , a total of 16,589 shares and 25,239 shares, respectively, 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.

There were no shares granted in 2024.

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:

7 unchanged sentences

NOTE 11 – RELATED PARTIES

Certain directors and executive officers of our bank, including their immediate families and companies in which they are principal owners, were loan customers of our bank.

At year-end 2024 and 2023 , our bank had $ 20.4 million and $ 124 million in loan commitments to directors and executive officers, of which $ 7.8 million and $ 89.5 million were outstanding at year-end 2024 and 2023 , respectively, as reflected in the following table.

Certain directors and executive officers of our banks, including their immediate families and companies in which they are principal owners, were loan customers of our banks.

At year-end 2025 and 2024 , our banks had $ 11.3 million and $ 20.4 million in loan commitments to directors and executive officers, of which $ 6.3 million and $ 7.8 million were outstanding at year-end 2025 and 2024 , respectively, as reflected in the following table.

(Dollars in thousands)

3 unchanged sentences

Effect of changes in related parties

( 79,847 ) ( 964 )

Ending balance

8 unchanged sentences

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.

Standby letters of credit are conditional commitments issued by our banks 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.

42 unchanged sentences

Commercial term loans secured by non-real estate collateral are generally at a floating rate tied to the Wall Street Journal Prime Rate or 30 -Day SOFR, or a fixed rate primarily equal to the commensurate cost of funds using FHLBI advance rates as a proxy and a credit spread as indicated by the credit rating we assign, and generally mature and fully amortize within three to seven years.

Effective January 1, 2022, we replaced the 30 -Day Libor Rate with 30 -Day SOFR for all new and renewing floating rate commercial loans and commitments.

Commercial loans tied to the 30 -Day Libor Rate outstanding on June 30, 2023 converted to an equivalent fallback SOFR Rate.

The following standby letters of credit are considered financial guarantees under current accounting guidance.

15 unchanged sentences

We have a deferred compensation plan in which all persons serving on the Board of Directors may defer all or portions of their annual retainer and meeting fees, with distributions to be paid upon termination of service as a director or specific dates selected by the director.

We also have a non-qualified deferred compensation program in which selected officers may defer all or portions of salary and bonus payments.

The deferred amounts, which totaled $ 1.3 million and $ 1.1 million as of December 31, 2024 and 2023 , respectively, are categorized as other liabilities in the Consolidated Balance Sheets, and are paid interest at a rate equal to the Wall Street Journal Prime Rate.

Interest expense was less than $ 0.1 million during 2024 , 2023 , and 2022 .

The Mercantile Bank Corporation Employee Stock Purchase Plan of 2014 is a non-compensatory plan intended to encourage full- and part-time employees of Mercantile and its subsidiaries to promote our best interests and to align employees’ interests with the interests of our shareholders by permitting employees to purchase shares of our common stock through regular payroll deductions.

Shares are purchased on the last business day of each calendar quarter at a price equal to the consolidated closing bid price of our common stock reported on The Nasdaq Stock Market.

We also have non-qualified deferred compensation programs in which selected officers may defer all or portions of salary and bonus payments.

The deferred amounts, which totaled $ 1.8 million and $ 1.3 million as of December 31, 2025 and 2024 , respectively, are categorized as other liabilities in the Consolidated Balance Sheets.

Interest expense was $ 0.1 million during 2025 , and less than $ 0.1 million during 2024 and 2023 .

The Mercantile Bank Corporation Employee Stock Purchase Plan of 2025 is a non-compensatory plan intended to encourage full- and part-time employees of Mercantile and its subsidiaries to promote our best interests and to align employees’ interests with the interests of our shareholders by permitting employees to purchase shares of our common stock with 5 % discount through regular payroll deductions.

Shares are purchased on the last business day of each calendar quarter at a price equal to the lower of 95 % of the closing price of our common stock reported on The Nasdaq Stock Market on the first business day of each quarter and last business day of the quarter.

A total of 200,000 shares of common stock may be issued under the existing plan;

however, the number of shares may be adjusted to reflect any stock dividends and other changes in our capitalization.

The number of shares issued totaled 1,194 and 1,410 in 2024 and 2023 , respectively.

The number of shares issued totaled 2,356 in 2025 .

As of December 31, 2025 , there were approximately 198,000 shares available under our current plan.

The Mercantile Bank Corporation Employee Stock Purchase Plan of 2014 was a non-compensatory plan intended to encourage full- and part-time employees of Mercantile and its subsidiaries to promote our best interests and to align employees’ interests with the interests of our shareholders by permitting employees to purchase shares of our common stock through regular payroll deductions.

The number of shares issued totaled 598 and 1,194 in 2025 and 2024, respectively.

NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES

22 unchanged sentences

959,447 Other Liabilities

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $ 0.1 million during the year ended December 31, 2024 that was recorded in other noninterest expense on our Consolidated Statement of Income.

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of less than $ 0.1 million during the year ended December 31, 2025 that was recorded in other noninterest expense on our Consolidated Statement of Income.

We have master netting arrangements with our correspondent banks that allow us to net receivables and payables.

26 unchanged sentences

864,130 Other Liabilities

The effect of interest rate swaps that are not designated as hedging instruments resulted in income of less than $ 0.1 million during the year ended December 31, 2023 that was recognized in other noninterest expense on our Consolidated Statement of Income.

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of less than $ 0.1 million during the year ended December 31, 2024 that was recognized in other noninterest expense on our Consolidated Statement of Income.

The netting of derivative instruments as of December 31, 2024 is presented in the following table.

22 unchanged sentences

(1) 1,102,230 1,102,230 730,352 730,352

Federal Home Loan Bank stock

4,763,697 4,830,844 4,546,327 4,558,628

4,546,327 4,558,628 4,253,844 4,191,644

Mortgage loans held for sale

17,160 17,319 15,824 16,047

Federal Home Loan Bank stock

(2) 22,099 22,099 21,513 21,513

Accrued interest receivable

12 unchanged sentences

89,657 86,826 89,314 81,825

Level 2 30,000 30,000 0 0

Accrued interest payable

3 unchanged sentences

See Note 16 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

It is not practical to determine the fair value of FHLBI stock due to transferability restrictions;

therefore, fair value is estimated at carrying amount.

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.

70 unchanged sentences

Available for sale securities

Treasury notes and bonds

$ 55,501 $ 0 $ 55,501 $ 0

Government agency debt obligations

7 unchanged sentences

Other investments

51,127 0 51,127 0

Interest rate swaps

5 unchanged sentences

$ 23,532 $ 0 $ 23,532 $ 0

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

The $ 0.1 million reduction in Level 3 municipal general obligation bonds during 2024 reflects the scheduled maturities of such bonds.

There were no sales or purchases of Level 3 during 2025 .

The $ 0.4 million reduction in Level 3 municipal general obligation bonds during 2025 reflects the transfer to Level 2 due to a change in observable inputs.

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

18 unchanged sentences

$ 27,050 $ 0 $ 27,050 $ 0

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

The $ 0.1 million reduction in Level 3 municipal general obligation bonds during 2024 reflects the scheduled maturities of such bonds.

MERCANTILE BANK CORPORATION

2 unchanged sentences

NOTE 16 – FAIR VALUE MEASUREMENTS (Continued)

There were no sales, purchases or transfers in or out of Level 3 during 2023 .

The less than $ 0.1 million reduction in Level 3 municipal general obligation bonds during 2023 reflects the scheduled maturities of such bonds.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

12 unchanged sentences

$ 2,173 $ 0 $ 0 $ 2,173

Foreclosed assets

$ 2,173 $ 0 $ 0 $ 2,173

4 unchanged sentences

In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions.

For real estate dependent loans and foreclosed assets, we assign a discount factor range of 25 % to 50 %, providing for a weighted average discount factor of 27.4 %, for commercial-related properties, and a discount factor range of 25 % to 35 %, providing for a weighted average discount factor of 26.0 %, for residential-related properties.

In a vast majority of cases, we assign a 10 % discount factor for estimated selling costs.

Typically, for real estate dependent loans and foreclosed assets, we assign a discount factor range of 25 % to 50 %.

During 2025, weighted average discount factors of 40.9 % and 25.8 % were used for commercial-related and residential-related properties, respectively.

MERCANTILE BANK CORPORATION

1 unchanged sentence

December 31, 2025

NOTE 17 – 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.

Stock options for approximately 5,000 shares of common stock were antidilutive and were not included in determining dilutive earnings per share in 2022.

The factors used in the earnings per share computation follow:

(Dollars in thousands, except share and per share amounts)

2024 2023 2022

Net income attributable to common shares

NOTE 17 – BUSINESS COMBINATIONS

On December 31, 2025, Mercantile completed its acquisition of Eastern Michigan Financial Corporation, and its wholly owned banking subsidiary, Eastern Michigan Bank, in accordance with the Agreement and Plan of Merger, as amended (the "Merger Agreement") by and between Mercantile, Eastern Michigan Financial Corporation, and Shamrock Merger Sub LLC, a wholly-owned special purpose subsidiary of Mercantile (“Merger Sub”) entered into on July 22, 2025.

Pursuant to the Merger Agreement, Eastern Michigan Financial Corporation merged with and into Merger Sub, with Merger Sub continuing as the surviving entity (the “Merger”).

Immediately following the Merger, and also effective as of December 31, 2025, Merger Sub merged with and into Mercantile, with Mercantile continuing as the surviving entity.

Mercantile accounted for the Eastern Michigan Financial Corporation acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations ("ASC 805" ).

ASC 805 requires assets purchased and liabilities assumed to be recorded at their respective fair values as of the date of acquisition.

Mercantile determined the fair value of loans, core deposit intangibles, mortgage servicing rights, time deposits, and real property with the assistance of third -party valuations and appraisals.

The following table summarizes the preliminary fair value of the total consideration transferred and the fair value of identifiable assets acquired, and liabilities assumed as of the effective date of the transaction:

(Dollars in thousands)

Consideration:

Common stock ( 924,999 shares issued at $ 48.55 per share)

Total consideration

Identifiable assets acquired

Cash and due from banks

Interest-earning deposits

Securities available for sale

Premises and equipment

Core deposit intangible

Total identifiable assets acquired

Identifiable liabilities assumed

Other liabilities

Total identifiable liabilities acquired

Net identifiable assets acquired

As permitted by ASC 805, the above preliminary estimates may be refined during the measurement period (which cannot exceed one year from the Merger date), to reflect any new information obtained about facts and circumstances existing at the Merger date.

Any changes in the above preliminary estimates will be recognized in the period identified.

The following table presents supplemental pro-forma information as if the acquisition had occurred at the beginning of 2024.

The unaudited pro forma information includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expenses on deposits acquired, and the related income tax effects.

The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction effected on the assumed dates.

(Dollars in thousands)

Net interest income

$ 223,697 $ 212,864

Weighted average common shares outstanding

Provision for credit losses

Noninterest income

43,691 42,555

Basic earnings per common share

Noninterest expense

153,391 142,451

Net income attributable to common shares

Income before income taxes

110,406 105,565

Weighted average common shares outstanding for basic earnings per common share

Income tax expense

16,591 21,125

Dilutive effects of share-based awards

Average shares and dilutive potential common shares

$ 93,815 $ 84,440

Diluted earnings per common share

Earnings per share

$ 5.47 $ 4.98

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 18 – VARIABLE INTEREST ENTITIES

2 unchanged sentences

We have relationships with certain variable interest entities related to the issuance of trust preferred securities and our tax credit investments.

We have five business trusts that are wholly-owned subsidiaries of Mercantile, four of which were assumed by Mercantile in conjunction with the Firstbank merger in 2014.

We have five business trusts that are wholly owned subsidiaries of Mercantile, four of which were assumed by Mercantile in conjunction with the Firstbank Corporation merger in 2014.

A fair value discount of $ 15.0 million was recorded at the time of the merger, which is being amortized at $ 0.7 million annually over the following 21.5 years, 11 of which are remaining.

3 unchanged sentences

The rates of interest, interest payment dates, call features and maturity dates of each Floating Rate Note are identical to its respective Preferred Securities.

The net proceeds from the issuance of the Floating Rate Notes were used for a variety of purposes, including contributions to our bank as capital to provide support for asset growth and the funding of stock repurchase programs and certain acquisitions.

The net proceeds from the issuance of the Floating Rate Notes were used for a variety of purposes, including contributions to Mercantile Bank as capital to provide support for asset growth and the funding of stock repurchase programs and certain acquisitions.

The assets, liabilities, operations and cash flows of each trust are solely related to the issuance, administration and repayment of the preferred securities held by third -party investors.

2 unchanged sentences

As such, we do not have a controlling financial interest in the variable interest entities.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 18 – VARIABLE INTEREST ENTITIES (Continued)

The only significant assets of our trusts are the Floating Rate Notes, and the only significant liabilities of our trusts are the Preferred Securities.

22 unchanged sentences

July 30, 2037

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 18 – VARIABLE INTEREST ENTITIES (Continued)

MCP makes equity investments as a limited liability member in affordable housing projects utilizing the Low-Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code.

Our bank also invests in multi-investor funds, which in turn invest in projects similar to that of MCP.

The purpose of these investments is to achieve a satisfactory return on capital and to support our bank’s community reinvestment initiatives.

The activities of the limited liability entities include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants generally within our bank’s primary geographic region.

Mercantile Bank also invests in multi-investor funds, which in turn invest in projects similar to that of MCP.

The purpose of these investments is to achieve a satisfactory return on capital and to support our banks' community reinvestment initiatives.

MCP also makes equity investments via special purpose investment entities as a limited liability member in entities that receive Historic Tax Credits (“HTC”) pursuant to Section 47 of the Internal Revenue Code.

The purpose of these investments is the rehabilitation of historic buildings with the tax credits provided to incent private investment in the historic cores of cities and towns.

The LIHTC and HTC investment entities are considered VIEs as MCP, or our bank, whomever is the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights.

MCP, or our bank, could absorb losses that are significant to the underlying entities as it has a risk of loss for its capital contributions and funding commitments to each.

The general partners, or managing members, are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the entities’ economic performances, and the managing members are exposed to all losses beyond MCP’s, or our bank’s, initial capital contributions and funding commitments.

The LIHTC and HTC investment entities are considered VIEs as MCP, or our banks, whomever is the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights.

MCP, or our banks, could absorb losses that are significant to the underlying entities as it has a risk of loss for its capital contributions and funding commitments to each.

The general partners, or managing members, are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the entities’ economic performances, and the managing members are exposed to all losses beyond MCP’s, or our banks', initial capital contributions and funding commitments.

We account for these entities using the proportional amortization method with the investment assets amortized in proportion to the income tax credits received in the current period as compared to the total income tax credit benefits expected to be received over the life of the investment.

Equity investments as a limited liability member in LIHTC and HTC investment entities, reported as other assets in the Consolidated Balance Sheets, totaled $ 51.5 million and $ 38.9 million as of December 31, 2025 and 2024 , respectively.

6 unchanged sentences

51,467 31,090 20,377 38,902 34,428 4,474

As of December 31, 2025, our expected payments for unfunded contributions related to investments in tax credit equity investments were as follows:

(Dollars in thousands)

MERCANTILE BANK CORPORATION

1 unchanged sentence

December 31, 2025

NOTE 19 – SUBORDINATED NOTES

The Notes are not subject to redemption at the option of the holder.

The Notes will bear interest at a fixed rate of 3.25 % per year until January 29, 2027.

On December 15, 2021, we injected $ 70.0 million of the issuance proceeds into our bank as an increase to equity capital.

On January 14, 2022, we issued an additional $ 15.0 million of Notes to certain institutional accredited investors, reflecting an expansion of the $75.0 million issuance completed on December 15, 2021.

The additional $ 15.0 million issuance was completed on the same terms as the prior offering and under the existing indenture.

On January 14, 2022, we injected $ 15.0 million of the issuance proceeds into our bank as an increase to equity capital.

Our unamortized debt issuance costs were $ 0.7 million and $ 1.0 million as of December 31, 2024 and 2023 , respectively.

NOTE 19 - REGULATORY MATTERS

8 unchanged sentences

In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator.

At year-end 2024 and 2023 , our bank was in the well capitalized category under the regulatory framework for prompt corrective action.

There are no conditions or events since December 31, 2024 that we believe have changed our bank’s categorization.

At year-end 2025 and 2024 , our banks were in the well capitalized category under the regulatory framework for prompt corrective action.

There are no conditions or events since December 31, 2025 that we believe have changed our banks' categorizations.

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 December 31, 2025 , our banks meet all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Federal and state banking laws and regulations place certain restrictions on the amount of dividends our banks can transfer to Mercantile and on the capital levels that must be maintained.

At year-end 2025 , under the most restrictive of these regulations, Mercantile Bank could distribute $ 12.0 million and Eastern Michigan Bank could distribute $ 4.5 million to Mercantile as dividends without prior regulatory approval.

Our and the ability of our banks 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 .

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 was paid on September 17, 2025 , to shareholders of record as of September 5, 2025 .

On October 16, 2025 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.38 per share that was paid on December 17, 2025 , to shareholders of record as of December 5, 2025 .

As of December 31, 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 2025 or 2024 .

Historically, stock repurchases have been funded from cash dividends paid to us from Mercantile 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 banks.

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.

Our consolidated capital levels as of December 31, 2025 and 2024 include $ 48.9 million and $ 48.3 million, respectively, 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 capital elements that may be included in 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.

At December 31, 2025 and 2024 , all $ 48.9 million and $ 48.3 million, respectively, of the trust preferred securities were included as Tier 1 capital of Mercantile.

MERCANTILE BANK CORPORATION

12 unchanged sentences

$ 854,876 14.3 % $ 476,702 8.0 % $

Mercantile Bank

775,664 13.8 449,498 8.0 561,873 10.0

Eastern Michigan Bank

54,612 19.0 22,992 8.0 28,740 10.0

Tier 1 capital (to risk weighted assets)

704,776 11.8 357,526 6.0 NA NA

Mercantile Bank

717,619 12.8 337,124 6.0 449,498 8.0

Eastern Michigan Bank

52,214 18.2 17,244 6.0 22,992 8.0

Common equity (to risk weighted assets)

655,835 11.0 268,145 4.5 NA NA

Mercantile Bank

717,619 12.8 252,843 4.5 365,217 6.5

Eastern Michigan Bank

52,214 18.2 12,933 4.5 18,681 6.5

Tier 1 capital (to average assets)

704,776 11.3 249,409 4.0 NA NA

Mercantile Bank

717,619 11.5 248,738 4.0 310,922 5.0

Eastern Michigan Bank

52,214 10.7 19,450 4.0 24,313 5.0

Total capital (to risk weighted assets)

$ 777,857 14.2 % $ 439,031 8.0 % $

Mercantile Bank

759,146 13.9 435,793 8.0 544,741 10.0

1 unchanged sentence

633,134 11.5 329,274 6.0 NA NA

Mercantile Bank

703,737 12.9 326,845 6.0 435,793 8.0

1 unchanged sentence

584,879 10.7 246,955 4.5 NA NA

Mercantile Bank

703,737 12.9 245,134 4.5 354,082 6.5

1 unchanged sentence

633,134 10.6 238,934 4.0 NA NA

Mercantile Bank

703,737 11.9 237,447 4.0 296,808 5.0

2 unchanged sentences

December 31, 2025

NOTE 20 – REGULATORY MATTERS (Continued)

The capital buffer requirement was phased in over three years beginning in 2016.

We believe that, as of December 31, 2024 , our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Federal and state banking laws and regulations place certain restrictions on the amount of dividends our bank can transfer to Mercantile and on the capital levels that must be maintained.

At year-end 2024 , under the most restrictive of these regulations, our bank could distribute $ 130 million to Mercantile as dividends without prior regulatory approval.

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 11, 2024 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.35 per share that was paid on March 13, 2024 to shareholders of record as of March 1, 2024 .

On April 11, 2024 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.35 per share that was paid on June 19, 2024 to shareholders of record as of June 7, 2024 .

On July 11, 2024 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.36 per share that was paid on September 18, 2024 to shareholders of record as of September 6, 2024.

On October 10, 2024 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.36 per share that was paid on December 18, 2024 to shareholders of record as of December 6, 2024 .

As of December 31, 2024 , 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 2024 or 2023 .

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.

Our consolidated capital levels as of December 31, 2024 and 2023 include $ 48.3 million and $ 47.6 million, respectively, of trust preferred securities.

Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element.

At December 31, 2024 and 2023 , all $ 48.3 million and $ 47.6 million, respectively, of the trust preferred securities were included as Tier 1 capital of Mercantile.

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

NOTE 20 – MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)

69 unchanged sentences

Cash flows from financing activities

Stock option exercises, net of cashless exercises

Employee stock purchase plan

Dividend reinvestment plan

Net proceeds from subordinated notes issuance

Proceeds from term note issuance

Cash dividends on common stock

8 unchanged sentences

$ 27,088 $ 17,420 $ 18,969

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 21 – BUSINESS SEGMENT INFORMATION

Pursuant to Financial Accounting Standards Codification

Segment Reporting, operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision makers in determining how to allocate resources and assessing performance.

Prior to our acquisition of Eastern Michigan Financial Corporation on

December 31, 2025, our chief operating decision makers, which include our Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, evaluated interest and noninterest income streams and credit losses from our various products and services, while expense activities, including interest expense and noninterest expense, were managed, and financial performance was evaluated, on a Company-wide basis.

As a result, detailed profitability information for each interest and noninterest income stream was

not used by our chief operating decision makers to allocate resources or in assessing performance.

Rather, our chief operating decision makers used consolidated net income to assess performance by comparing it to and monitoring against budgeted and prior-year results.

This information was used to manage resources to drive business and net income growth, including investment in key strategic priorities, as well as determine our ability to return capital to shareholders.

Subsequent to our acquisition of Eastern Michigan Financial Corporation on

December 31, 2025, our chief operating decision makers now evaluate interest and noninterest income streams, credit losses, expense activities, and financial performance through our

two wholly owned subsidiary banks, Mercantile Bank and Eastern Michigan Bank.

Each of these operating segments offer similar products and services, but are managed separately due to different pricing, product demand, and consumer markets.

Both segments derive interest and noninterest income through their banking products and services and investment securities.

All of our income relates to our operations in the United States.

Our chief operating decision makers use subsidiary level net income to assess performance by comparing it to and monitoring against budgeted and prior-year results.

Segment net income represented net income on our Consolidated Statements of Income during and for the years ended

December 31, 2025,

Segment assets represented total assets and goodwill represented total goodwill on our Consolidated Balance Sheets as of

December 31, 2024.

Goodwill, core deposit intangible, and total assets by segment as of

December 31, 2025 were as follows:

(Dollars in thousands)

Mercantile Bank

Eastern Michigan Bank

Intercompany Eliminations

Consolidated Total

$ 32,171 $ 23,183 $ 17,302 $ - $ 72,656

Core deposit intangible

- 20,388 - - 20,388

6,241,994 571,776 1,014,523 ( 993,074 ) 6,835,219

MERCANTILE BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2025

NOTE 22 – SUBSEQUENT EVENTS

2 unchanged sentences

EXHIBIT DESCRIPTION

Agreement and Plan of Merger dated July 22, 2025, between Mercantile Bank Corporation, Eastern Michigan Financial Corporation and Shamrock Merger Sub Inc., included as Annex A to the proxy statement/prospectus, which forms a part of the Registration Statement on Form S-4, as amended, filed with the SEC on October 21, 2025†

First Amendment to Agreement and Plan of Merger dated October 2, 2025, included as Annex A-2 to the proxy statement/prospectus, which forms a part of the Registration Statement on Form S-4, as amended, filed with the SEC on October 21, 2025†

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

8 unchanged sentences

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

Form of Mercantile Bank Split Dollar Agreement that has been entered into between our bank and each of Robert B.

Description of Securities Registered Under Section 12 of the Exchange Act#

Form of Mercantile Bank Split Dollar Agreement that has been entered into between Mercantile Bank and each of Robert B.

Kaminski, Jr., Charles E.

Christmas, and certain other officers of our bank is incorporated by reference to exhibit 10.33 of our Form 10-K for the year ended December 31, 2005*

Christmas, and certain other officers of Mercantile Bank is incorporated by reference to exhibit 10.33 of our Form 10-K for the year ended December 31, 2005*

Mercantile Bank Corporation Employee Stock Purchase Plan of 2014 is incorporated by reference to exhibit 4(b) of our Registration Statement on Form S-8 that became effective on June 27, 2014

2 unchanged sentences

dated November 29, 2018, effective December 31, 2018, incorporated by reference to exhibit 10.1 of our Form 8-K filed December 3, 2018*

EXHIBIT DESCRIPTION

Amended and Restated Employment Agreement of Charles E.

4 unchanged sentences

Worthington dated December 19, 2024, effective January 1, 2025, incorporated by reference to exhibit 10.5 of our Form 8-K filed December 19, 2024*

EXHIBIT DESCRIPTION

Amended and Restated Employment Agreement of Brett E.

20 unchanged sentences

Director Fee Summary*#

2025 Mercantile Executive Officer Bonus Plan, incorporated by reference to exhibit 10.1 of our Form 8-K filed March 20, 2025*

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)

Form of Voting Agreement, incorporated by reference to our Form 8-K filed July 22, 2025

Credit Agreement, dated December 24, 2025, by and between Mercantile Bank Corporation and U.S.

Bank National Association, incorporated by reference to exhibit 10.1 of our Form 8-K filed December 31, 2025†

Code of Ethics#

2 unchanged sentences

Consent of Plante & Moran, PLLC#

Consent of BDO USA, P.C.

Rule 13a-14(a) Certifications#

7 unchanged sentences

* Management contract or compensatory plan.

Pursuant to the requirements of Section 13 or 15(d) 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 March 3, 2025.

# Filed herewith.

+ Furnished herewith.

† Exhibits, schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

The Registrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request on a confidential basis.

MERCANTILE BANK CORPORATION

1 unchanged sentence

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 3, 2025.

/s/ Michael S.

Davenport, Director

/s/ Michael H.

Price, Chairman of the Board

/s/ Thomas D.

Dickinson, Director

Ramaker, Director

/s/ Michelle L.

Eldridge, Director

/s/ Nelson F.

Sanchez, Director

/s/ Michelle L.

Eldridge, Director

Schmidt, Director

/s/ Joseph D.

Jones, Director

Schmidt, Director

/s/ Robert B.

Kaminski Jr., Director

Sparks, Director

/s/ Steven J.

Schweihofer, Director

/s/ Richard D.

MacDonald, Director

Sparks, Director

/s/ Michael H.

Price, Chairman of the Board

/s/ Shoran R.

Williams, Director

/s/ Raymond E.

Director, President and Chief Executive Officer

(principal executive officer)

Ramaker, Director

/s/ Charles E.

2 unchanged sentences

(principal financial and accounting officer)

/s/ Raymond E.

Director, President and Chief Executive Officer

(principal executive officer)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures