MERCANTILE BANK CORP 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, (Dollars in thousands) 2026 2025 ASSETS Cash and due from banks $ 69,802 $ 54,755 Interest-earning deposits and Federal Funds sold 271,129 418,569 Total cash and cash equivalents 340,931 473,324 Securities available for sale 1,125,529 1,102,230 Mortgage loans held for sale 31,272 17,160 Loans 4,915,553 4,821,888 Allowance for credit losses ( 55,441 ) ( 58,191 ) Loans, net 4,860,112 4,763,697 Premises and equipment, net 60,727 62,468 Bank owned life insurance 116,578 105,342 Goodwill 73,689 72,656 Core deposit intangible 17,307 20,388 Other assets 193,345 217,954 Total assets $ 6,819,490 $ 6,835,219 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 1,420,591 $ 1,339,666 Interest-bearing 3,875,797 3,944,786 Total deposits 5,296,388 5,284,452 Securities sold under agreements to repurchase 217,470 232,291 Federal Home Loan Bank advances 305,322 326,221 Subordinated debentures 51,358 51,015 Subordinated notes 89,829 89,657 Term note 25,000 30,000 Accrued interest and other liabilities 78,999 96,699 Total liabilities 6,064,366 6,110,335 Commitments and contingent liabilities (Note 9) Shareholders' equity Preferred stock, no par value; 1,000,000 shares authorized; none issued 0 0 Common stock, no par value; 40,000,000 shares authorized; 17,285,911 shares issued and outstanding at June 30, 2026, and 17,181,096 shares issued and outstanding at December 31, 2025 352,339 349,431 Retained earnings 434,786 399,448 Accumulated other comprehensive income (loss) ( 32,001 ) ( 23,995 ) Total shareholders’ equity 755,124 724,884 Total liabilities and shareholders’ equity $ 6,819,490 $ 6,835,219 See accompanying notes to consolidated financial statements. 1 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Three Months Six Months Six Months Ended Ended Ended Ended (Dollars in thousands except per share amounts) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Interest income Loans, including fees $ 73,293 $ 73,613 $ 145,190 $ 145,343 Securities, taxable 7,714 4,233 15,122 8,019 Securities, tax-exempt 1,460 1,181 2,901 2,353 Other interest-earning assets 4,229 2,931 8,909 6,582 Total interest income 86,696 81,958 172,122 162,297 Interest expense Deposits 23,140 25,725 46,386 50,918 Short-term borrowings 1,488 1,919 2,967 3,682 Federal Home Loan Bank advances 2,595 2,897 5,151 5,795 Subordinated debt and other borrowings 2,215 1,938 4,459 3,875 Total interest expense 29,438 32,479 58,963 64,270 Net interest income 57,258 49,479 113,159 98,027 Provision for credit losses ( 1,800 ) 1,600 ( 3,600 ) 3,700 Net interest income after provision for credit losses 59,058 47,879 116,759 94,327 Noninterest income Service charges on deposit and sweep accounts 2,663 1,967 5,147 3,806 Mortgage banking income 3,188 3,969 6,168 6,620 Credit and debit card income 2,921 2,350 5,509 4,551 Interest rate swap fees 443 1,230 1,106 1,310 Payroll services income 854 783 1,948 1,823 Earnings on bank owned life insurance 776 561 1,441 1,104 Other income 653 602 1,868 950 Total noninterest income 11,498 11,462 23,187 20,164 Noninterest expense Salaries and benefits 24,608 20,711 48,287 40,268 Occupancy 2,261 2,155 4,677 4,273 Furniture and equipment depreciation, rent and maintenance 988 826 1,950 1,613 Data processing costs 4,617 3,599 9,044 7,369 Core conversion costs 536 0 3,458 0 Acquisition costs 94 0 394 0 Core deposit intangible amortization 865 0 1,731 0 Other expense 5,406 6,088 11,942 10,960 Total noninterest expense 39,375 33,379 81,483 64,483 Income before federal income tax expense 31,181 25,962 58,463 50,008 Federal income tax expense 5,254 3,344 9,851 7,853 Net income $ 25,927 $ 22,618 $ 48,612 $ 42,155 Basic earnings per share $ 1.50 $ 1.39 $ 2.82 $ 2.60 Diluted earnings per share $ 1.50 $ 1.39 $ 2.82 $ 2.60 Average basic shares outstanding 17,278,057 16,239,919 17,257,766 16,219,064 Average diluted shares outstanding 17,278,057 16,239,919 17,257,766 16,219,064 See accompanying notes to consolidated financial statements. 2 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Three Months Six Months Six Months Ended Ended Ended Ended (Dollars in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Net income $ 25,927 $ 22,618 $ 48,612 $ 42,155 Other comprehensive income (loss): Unrealized holding gains (losses) on securities available for sale ( 3,549 ) 6,204 ( 10,135 ) 17,797 Tax effect of unrealized holding gains (losses) on securities available for sale 745 ( 1,303 ) 2,129 ( 3,738 ) Other comprehensive income (loss), net of tax ( 2,804 ) 4,901 ( 8,006 ) 14,059 Comprehensive income (loss) $ 23,123 $ 27,519 $ 40,606 $ 56,214 See accompanying notes to consolidated financial statements. 3 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Accumulated Other Total Preferred Common Retained Comprehensive Shareholders’ (Dollars in thousands except per share amounts) Stock Stock Earnings Income (Loss) Equity Balances, April 1, 2026 $ 0 $ 350,645 $ 415,499 $ ( 29,197 ) $ 736,947 Employee stock purchase plan ( 1,214 shares) 59 59 Dividend reinvestment plan ( 2,930 shares) 157 157 Stock grants to directors for retainer fees ( 8,676 shares) 456 456 Stock-based compensation expense 1,022 1,022 Cash dividends ($ 0.39 per common share) ( 6,640 ) ( 6,640 ) Net income for the three months ended June 30, 2026 25,927 25,927 Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect ( 2,804 ) ( 2,804 ) Balances, June 30, 2026 $ 0 $ 352,339 $ 434,786 $ ( 32,001 ) $ 755,124 See accompanying notes to consolidated financial statements. 4 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued) (Unaudited) Accumulated Other Total Preferred Common Retained Comprehensive Shareholders’ (Dollars in thousands except per share amounts) Stock Stock Earnings Income (Loss) Equity Balances, January 1, 2026 $ 0 $ 349,431 $ 399,448 $ ( 23,995 ) $ 724,884 Employee stock purchase plan ( 2,237 shares) 105 105 Dividend reinvestment plan ( 6,531 shares) 338 338 Stock grants to directors for retainer fees ( 8,997 shares) 472 472 Stock-based compensation expense 1,993 1,993 Cash dividends ($ 0.78 per common share) ( 13,274 ) ( 13,274 ) Net income for the six months ended June 30, 2026 48,612 48,612 Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect ( 8,006 ) ( 8,006 ) Balances, June 30, 2026 $ 0 $ 352,339 $ 434,786 $ ( 32,001 ) $ 755,124 See accompanying notes to consolidated financial statements. 5 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued) (Unaudited) Accumulated Other Total Preferred Common Retained Comprehensive Shareholders’ (Dollars in thousands except per share amounts) Stock Stock Earnings Income (Loss) Equity Balances, April 1, 2025 $ 0 $ 300,732 $ 348,281 $ ( 40,667 ) $ 608,346 Employee stock purchase plan ( 322 shares) 15 15 Dividend reinvestment plan ( 4,687 shares) 202 202 Stock grants to directors for retainer fees ( 9,210 shares) 408 408 Stock-based compensation expense 937 937 Cash dividends ($ 0.37 per common share) ( 5,908 ) ( 5,908 ) Net income for the three months ended June 30, 2025 22,618 22,618 Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect 4,901 4,901 Balances, June 30, 2025 $ 0 $ 302,294 $ 364,991 $ ( 35,766 ) $ 631,519 See accompanying notes to consolidated financial statements. 6 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued) (Unaudited) Accumulated Other Total Preferred Common Retained Comprehensive Shareholders’ (Dollars in thousands except per share amounts) Stock Stock Earnings Income (Loss) Equity Balances, January 1, 2025 $ 0 $ 299,705 $ 334,646 $ ( 49,825 ) $ 584,526 Employee stock purchase plan ( 598 shares) 27 27 Dividend reinvestment plan ( 9,257 shares) 405 405 Stock grants to directors for retainer fees ( 9,810 shares) 434 434 Stock-based compensation expense 1,723 1,723 Cash dividends ($ 0.74 per common share) ( 11,810 ) ( 11,810 ) Net income for the six months ended June 30, 2025 42,155 42,155 Change in net unrealized holding gain (loss) on securities available for sale, net of tax effect 14,059 14,059 Balances, June 30, 2025 $ 0 $ 302,294 $ 364,991 $ ( 35,766 ) $ 631,519 See accompanying notes to consolidated financial statements. 7 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Six Months Ended Ended (Dollars in thousands) June 30, 2026 June 30, 2025 Cash flows from operating activities Net income $ 48,612 $ 42,155 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 2,875 3,064 Accretion of acquired loans ( 310 ) 0 Provision for credit losses ( 3,600 ) 3,700 Stock-based compensation expense 1,993 1,723 Stock grants to directors for retainer fees 472 434 Proceeds from sales of mortgage loans held for sale 203,031 190,367 Origination of mortgage loans held for sale ( 210,916 ) ( 196,413 ) Net gain from sales of mortgage loans held for sale ( 6,227 ) ( 5,699 ) Net loss from sales and disposals of premises and equipment 85 0 Earnings on bank owned life insurance ( 1,441 ) ( 1,104 ) Net loss (gain) on instruments designated at fair value and related derivatives ( 117 ) 210 Net change in: Accrued interest receivable ( 47 ) ( 278 ) Other assets 20,480 ( 28,260 ) Accrued interest payable and other liabilities ( 11,312 ) ( 20,680 ) Net cash from (for) operating activities 43,578 ( 10,781 ) Cash flows from investing activities Loan originations and payments, net ( 92,505 ) ( 97,017 ) Purchases of securities available for sale ( 81,279 ) ( 104,552 ) Purchases of Federal Reserve Bank stock ( 2,154 ) 0 Proceeds from maturities, calls and repayments of securities available for sale 52,808 28,180 Purchases of bank owned life insurance ( 10,000 ) 0 Proceeds from bank owned life insurance claims 186 0 Net purchases of premises and equipment and lease activity ( 1,266 ) ( 3,898 ) Net cash for investing activities ( 134,210 ) ( 177,287 ) See accompanying notes to consolidated financial statements. 8 Table of Contents MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Six Months Six Months Ended Ended (Dollars in thousands) June 30, 2026 June 30, 2025 Cash flows from financing activities Net increase (decrease) in time deposits ( 111,387 ) 51,158 Net increase (decrease) in all other deposits 123,177 ( 39,052 ) Net increase (decrease) in securities sold under agreements to repurchase ( 14,821 ) 121,264 Payments on term note ( 5,000 ) 0 Payoffs and paydowns of Federal Home Loan Bank advances ( 50,899 ) ( 50,862 ) Proceeds from Federal Home Loan Bank advances 30,000 20,000 Employee stock purchase plan 105 27 Dividend reinvestment plan 338 405 Payment of cash dividends to common shareholders ( 13,274 ) ( 11,810 ) Net cash from (for) financing activities ( 41,761 ) 91,130 Net change in cash and cash equivalents ( 132,393 ) ( 96,938 ) Cash and cash equivalents at beginning of period 473,324 393,010 Cash and cash equivalents at end of period $ 340,931 $ 296,072 Supplemental disclosures of cash flows information Cash paid (received) during the period for: Interest $ 61,676 $ 64,263 Federal income taxes* ( 10,710 ) 18,342 *Federal income taxes include amounts paid for the acquisition of transferable federal income tax credits. See accompanying notes to consolidated financial statements. 9 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation : The unaudited financial statements for the six months ended June 30, 2026 , include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries (unless text clearly suggests otherwise, collectively, "we," "us," "our," "the Company," and "Mercantile"). These subsidiaries include Mercantile Bank and Eastern Michigan Bank (collectively "our banks"), Mercantile Community Partners LLC ("MCP"), and Mercantile Insurance Center, Inc. ("our insurance company"), a subsidiary of Mercantile Bank. These consolidated financial statements have been prepared in accordance with the instructions for Form 10 -Q and Item 303 (b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended June 30, 2026 , should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10 -K for the year ended December 31, 2025 . We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability. Recent Events: On 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. See Note 13 - Business Combinations for further information. 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 includes the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and is determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share. Approximately 256,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2026 . Approximately 277,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three and six months ended June 30, 2025 . Debt Securities : Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities available for sale consist of bonds that may be sold prior to maturity due to a number of factors, including changes in interest rates, prepayment risks, yield, availability of alternative investments or liquidity needs. Debt securities classified as available for sale are reported at their fair value. For an available for sale debt security in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security’s amortized cost basis is written down to fair value through income with the establishment of an allowance. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income (loss). Changes in the allowance are recorded as provisions for (or reversals of) credit losses. Losses are charged against the allowance when the collectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2026 , and December 31, 2025 , there was no allowance related to the available for sale debt securities portfolio. Interest income includes amortization of purchase premiums and accretion of discounts. Premiums on debt securities are amortized to the initial call date, if applicable, or to the maturity date, on the level-yield method. Discounts on debt securities are accreted to the maturity date on the level-yield method. Premiums and discounts on mortgage-backed securities are amortized or accreted based on anticipated prepayments on the level-yield method. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. (Continued) 10 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans : Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Net unamortized deferred loan costs amounted to $ 1.1 million and $ 1.3 million at June 30, 2026 , and December 31, 2025 , respectively. The December 31, 2025, acquisition of Eastern Michigan Financial Corporation and its wholly owned banking subsidiary, Eastern Michigan Bank, resulted in the recognition of $ 1.5 million in 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 lives of the loans. Net discounts amortized into interest income totaled $ 0.3 million during the six months ended June 30, 2026 . Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful. Accrued interest is included in other assets in the Consolidated Balance Sheets. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans Held for Sale : Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of June 30, 2026 , and December 31, 2025 , we determined that the fair value of our mortgage loans held for sale totaled $ 31.8 million and $ 17.3 million, respectively. Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price, which includes a gain or loss on the interest rate commitment coverage position, and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. Market rate risk on interest rate commitments with borrowers prior to loan closings is mitigated through forward commitments referred to as to-be-announced mortgage-backed securities. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income. Allowance for Credit Losses ( “a llowance ” ) : The allowance is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance is increased by a provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged-off against the allowance when we believe the uncollectability of a loan balance is confirmed. The allowance is measured on a collective pool basis when similar risk characteristics exist and on an individual basis when a loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. Loan segments are further discussed in Note 3 - Loans and Allowance for Credit Losses. The “remaining life methodology” is utilized for substantially all loan pools. This non-discounted cash flow approach projects an estimated future amortized cost basis based on current loan balance and repayment terms. Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss. The baseline lifetime loss is adjusted for changes in macroeconomic conditions over the reasonable and supportable forecast and reversion periods via a series of macroeconomic forecast inputs, such as gross domestic product, unemployment rates, interest rates, credit spreads, stock market volatility and property price indices, to quantify the impact of current and forecasted economic conditions on expected loan performance. Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. The contractual term generally excludes potential extensions, renewals and modifications. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. We are not required to develop and use our own economic forecast model, and we elect to utilize economic forecasts from third -party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly. (Continued) 11 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) During each reporting period, we also consider the need to adjust the historical loss rates as determined to reflect the extent to which we expect current conditions and reasonable and supportable economic forecasts to differ from the conditions that existed for the period over which the historical loss information was determined. These qualitative adjustments may increase or decrease our estimate of expected future credit losses. Our qualitative factors include: o Changes in lending policies and procedures o Changes in the nature and volume of the loan portfolio and in the terms of loans o Changes in the experience, ability and depth of lending management and other relevant staff o Changes in the volume and severity of past due loans, nonaccrual loans and adversely classified loans o Changes in the quality of the loan review program o Changes in the value of underlying collateral dependent loans o Existence and effect of any concentrations of credit and any changes in such o Effect of other factors such as competition and legal and regulatory requirements o Local or regional conditions that depart from the conditions and forecasts for the entire country The estimation of future credit losses should reflect consideration of all significant factors that affect the collectability of the loan portfolio at each evaluation date. While our methodology considers both the historical loss rates as well as the traditional qualitative factors, there may be instances or situations where additional qualitative factors need to be considered. Due to the relatively low level of loan losses during the look-back period, we have established a historical loss information factor that has been included in the qualitative factors that are included in the estimation of future credit losses in the periods presented. 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, were ever on nonaccrual status, or had ever been past due three or more times, consumer loans with borrower credit scores below 600, and commercial loans rated monitor, special mention, substandard or doubtful to be PCD loans. 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. We recorded a provision for credit losses of negative $ 3.6 million and positive $ 3.7 million during the six months ended June 30, 2026, and 2025 , respectively. The negative provision recorded during the first six months of 2026 primarily reflected a decline in specific allocations and changes in loan mix, which more than offset allocations necessitated by changes in qualitative factors and net loan growth. The positive provision expense recorded during the first six months of 2025 mainly reflected an individual allocation, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. Accrued interest receivable on loans totaling $ 17.4 million and $ 17.5 million as of June 30, 2026 , and December 31, 2025 , respectively, is included in other assets on the Consolidated Balance Sheets. We elected not to measure an allowance for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when loans become 90 days past due, or earlier if we believe the collection of interest is doubtful. We believe this policy results in the timely reversal of uncollectable interest. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. In some cases, we may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed and collateral deficiencies, among other things. (Continued) 12 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) For individually analyzed loans that are deemed to be collateral dependent loans, we adopted the practical expedient to measure the allowance based on the fair value of collateral. The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral and the recorded principal balance. If the fair value of the collateral exceeds the recorded principal balance, no allowance is required. Fair value estimates of collateral on individually analyzed loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions. We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheets and is increased or decreased via other noninterest expense on our Consolidated Statements of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded. Mortgage Banking Activities : Mortgage loans serviced for others totaled $ 1.71 billion and $ 1.69 billion as of June 30, 2026 , and December 31, 2025 , respectively. Mortgage loan servicing rights, which are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold, totaled $ 13.7 million and $ 13.6 million as of June 30, 2026 , and December 31, 2025 , respectively. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance. The fair value of mortgage servicing rights totaled $ 23.4 million and $ 21.4 million as of June 30, 2026 , and December 31, 2025 , respectively. Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the Consolidated Statements of Income. Derivatives : Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management strategies to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We do not use derivatives for trading purposes. Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income (loss). They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense. We had no derivative instruments designated as hedges as of June 30, 2026 , and December 31, 2025 . Goodwill : The acquisition method of accounting requires that assets and liabilities acquired in a business combination be recorded at fair value as of the acquisition date. The valuation of assets and liabilities often involves estimates based on third -party valuations or internal valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. This typically results in goodwill, the amount by which the cost of net assets acquired in a business combination exceeds their fair value, which is subject to impairment testing at least annually. We review goodwill for impairment on an annual basis as of October 1 during the fourth quarter or more often if events or circumstances indicate that it is more-likely-than- not that the fair value of a reporting unit is below its carrying value. Based on our annual impairment analysis of goodwill as of October 1 during the fourth quarter, it was determined that the fair value was in excess of its respective carrying value as of October 1, 2025; therefore, goodwill is considered not impaired. Subsequent to the analysis of goodwill, on December 31, 2025, we acquired Eastern Michigan Financial Corporation, resulting in the recognition of $ 24.2 million of goodwill. Goodwill recognized from the acquisition of Eastern Michigan Financial Corporation is further discussed in Note 13 - Business Combinations. No material changes and no triggering events have occurred that indicated impairment. (Continued) 13 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue from Contracts with Customers : We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606” ). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. Our primary sources of revenue are derived from interest and dividends earned on loans, securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. We generally satisfy our performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis (generally monthly) or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The following table depicts our sources of noninterest income presented in the Consolidated Statements of Income that are scoped within Topic 606: Three Months Three Months Six Months Six Months Ended Ended Ended Ended (Dollars in thousands) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Service charges on deposit and sweep accounts $ 2,663 $ 1,967 $ 5,147 $ 3,806 Credit and debit card income 2,921 2,350 5,509 4,551 Interest rate swap fees 443 1,230 1,106 1,310 Payroll services income 854 783 1,948 1,823 Customer service fees 274 179 540 376 Service Charges on Deposit and Sweep Accounts: We earn fees from deposit and sweep customers for account maintenance, transaction-based and overdraft services. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month reflecting the period over which we satisfy the performance obligation. Transaction-based fees, which include services such as stop payment and returned item charges, are recognized at the time the transaction is executed as that is the point in time we fulfill the customer request. Service charges on deposit and sweep accounts are withdrawn from the customer account balance. Credit and Debit Card Income: We earn interchange income on our cardholder debit and credit card usage. Interchange income is primarily comprised of fees whenever our debit and credit cards are processed through card payment networks such as Visa. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interest Rate Swap Fees: We offer a loan swap program to certain commercial loan customers. Through this program, we originate a variable rate loan with the customer. We and the swap customer will then enter into a fixed interest rate swap. Separately, an identical offsetting swap is entered into by the Company with a counterparty. These “back-to-back” swap arrangements are intended to offset each other and allow us to book a variable rate loan, while providing the customer with a contract for fixed interest payments. Through this program, we receive an upfront, non-refundable fee from the counterparty, dependent upon the pricing, which is recognized upon receipt from the counterparty. Payroll Services Income: We earn fees from providing payroll processing services for our commercial clients. Fees are assessed for processing weekly or bi-weekly payroll files, reports and documents, as well as year-end tax-related files, reports and documents. Fees are recognized and collected as payroll processing services are completed for each payroll run and year-end processing activities. Customer Service Fees: We earn fees by providing a variety of other services to our customers, such as wire transfers, check ordering, sales of cashier checks, and rentals of safe deposit boxes. Generally, fees are recognized and collected daily, concurrently with the point in time we fulfill the customer request. Safe deposit box rentals are on annual contracts, with fees generally earned at the time of the contract signing or renewal. Customer service fees are recorded as other noninterest income on our Consolidated Statements of Income. (Continued) 14 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. SECURITIES The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows: Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value June 30, 2026 U.S. Treasury notes and bonds $ 55,805 $ 0 $ ( 706 ) $ 55,099 U.S. Government agency debt obligations 716,342 1,008 ( 29,842 ) 687,508 Mortgage-backed securities 75,258 7 ( 6,066 ) 69,199 Municipal general obligation bonds 213,901 1,804 ( 4,532 ) 211,173 Municipal revenue bonds 65,546 176 ( 2,094 ) 63,628 Other investments 39,185 0 ( 263 ) 38,922 $ 1,166,037 $ 2,995 $ ( 43,503 ) $ 1,125,529 December 31, 2025 U.S. Treasury notes and bonds $ 55,501 $ 0 $ 0 $ 55,501 U.S. Government agency debt obligations 661,841 4,343 ( 26,411 ) 639,773 Mortgage-backed securities 80,475 14 ( 4,727 ) 75,762 Municipal general obligation bonds 217,283 1,946 ( 4,166 ) 215,063 Municipal revenue bonds 66,376 180 ( 1,552 ) 65,004 Other investments 51,127 0 0 51,127 $ 1,132,603 $ 6,483 $ ( 36,856 ) $ 1,102,230 Securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows: Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized (Dollars in thousands) Value Loss Value Loss Value Loss June 30, 2026 U.S. Treasury notes and bonds $ 55,099 $ 706 $ 0 $ 0 $ 55,099 $ 706 U.S. Government agency debt obligations 177,740 2,269 394,004 27,573 571,744 29,842 Mortgage-backed securities 46,699 1,170 21,768 4,896 68,467 6,066 Municipal general obligation bonds 13,879 185 99,531 4,347 113,410 4,532 Municipal revenue bonds 31,407 411 22,332 1,683 53,739 2,094 Other investments 37,424 263 0 0 37,424 263 $ 362,248 $ 5,004 $ 537,635 $ 38,499 $ 899,883 $ 43,503 December 31, 2025 U.S. Treasury notes and bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 U.S. Government agency debt obligations 41,380 234 350,926 26,177 392,306 26,411 Mortgage-backed securities 0 0 22,945 4,727 22,945 4,727 Municipal general obligation bonds 4,465 23 102,736 4,143 107,201 4,166 Municipal revenue bonds 2,956 13 19,893 1,539 22,849 1,552 Other investments 0 0 0 0 0 0 $ 48,801 $ 270 $ 496,500 $ 36,586 $ 545,301 $ 36,856 (Continued) 15 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. SECURITIES (Continued) We evaluate securities in an unrealized loss position at least quarterly. Consideration is given to the financial condition of the issuer and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. At June 30, 2026 , 893 debt securities with estimated fair values totaling $ 900 million had unrealized losses aggregating $ 43.5 million. At December 31, 2025 , 607 debt securities with estimated fair values totaling $ 545 million had unrealized losses aggregating $ 36.9 million. At June 30, 2026 , unrealized losses aggregating $ 36.6 million were attributable to bonds issued or guaranteed by agencies of the U.S. Federal Government, while unrealized losses totaling $ 6.6 million were associated with bonds issued by state-based municipalities. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the debt security’s amortized cost basis is written down to fair value through income with the establishment of an allowance. For debt securities available for sale that do not meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors. The amortized cost and fair value of debt securities as of June 30, 2026 , by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Amortized Fair (Dollars in thousands) Cost Value Due in 2026 $ 52,714 $ 52,448 Due in 2027 through 2031 686,248 662,249 Due in 2032 through 2036 241,078 230,245 Due in 2037 and beyond 71,554 72,466 Mortgage-backed securities 75,258 69,199 Other investments 39,185 38,922 $ 1,166,037 $ 1,125,529 No securities were sold during the first six months of 2026 or the full-year 2025 . Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $ 249 million and $ 252 million as of June 30, 2026 , and December 31, 2025 , respectively, with estimated market values of $ 245 million and $ 249 million at the respective dates. Securities issued by all other states and their political subdivisions had combined amortized costs of $ 30.8 million and $ 31.3 million as of June 30, 2026 , and December 31, 2025 , respectively, with estimated market values of $ 30.4 million and $ 31.3 million at the respective dates. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity. The carrying value of U.S. Government agency debt obligation securities that are pledged to secure repurchase agreements was $ 217 million and $ 232 million at June 30, 2026 , and December 31, 2025 , respectively. The carrying value of U.S. Government agency debt obligation securities that are pledged to secure specific customer deposits was $ 12.5 million and $ 12.6 million at June 30, 2026 , and December 31, 2025 , respectively. (Continued) 16 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES Commercial loans are divided among five segments based primarily on collateral type, risk characteristics, and primary and secondary sources of repayment. These segments are then further stratified based on the commercial loan grade that is assigned using our standard loan grading paradigm. Retail loans are divided into one of two groups based on risk characteristics and source of repayment. Our allowance for credit loss pools are consistent with those used for loan note disclosure purposes. Our loan portfolio segments as of both June 30, 2026 , and December 31, 2025 , were as follows: o Commercial Loans ■ Commercial and Industrial : Risks to this loan category include industry concentration and the practical limitations associated with monitoring the condition of the collateral which often consists of inventory, accounts receivable, and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. ■ Owner Occupied Commercial Real Estate : Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also, declines in real estate values and lack of suitable alternative uses for the properties are risks for loans in this category. ■ Non-Owner Occupied Commercial Real Estate : Loans in this category are susceptible to declines in occupancy rates, business failure, and general economic conditions. Also, declines in real estate values and lack of suitable alternative uses for the properties are risks for loans in this category. ■ Multi-Family and Residential Rental : Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral. Loans in this category are susceptible to weakening general economic conditions and increases in unemployment rates, as well as market demand and supply of similar property and the resulting impact on occupancy rates, market rents, cash flow, and income-based real estate values. Also, the lack of suitable alternative uses for the properties is a risk for loans in this category. ■ Vacant Land, Land Development and Residential Construction : Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements, and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans. Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates. o Retail Loans ■ 1 - 4 Family Mortgages : Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values. ■ Other Consumer Loans : Risks common to these loans include regulatory risks, unemployment, and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property. (Continued) 17 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Our total loans at June 30, 2026 , were $ 4.92 billion, an increase of $ 93.7 million, or 1.9 %, compared to December 31, 2025 . The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2026 , and December 31, 2025 , and the percentage change in loans from the end of 2025 to the end of the second quarter of 2026 , are as follows: Percent June 30, 2026 December 31, 2025 Increase (Dollars in thousands) Balance % Balance % (Decrease) Commercial: Commercial and industrial $ 1,537,029 31.3 % $ 1,374,522 28.5 % 11.8 % Vacant land, land development, and residential construction 119,387 2.4 117,373 2.4 1.7 Real estate – owner occupied 803,883 16.4 778,869 16.2 3.2 Real estate – non-owner occupied 1,091,844 22.2 1,110,674 23.0 ( 1.7 ) Real estate – multi-family and residential rental 498,253 10.1 537,224 11.2 ( 7.3 ) Total commercial 4,050,396 82.4 3,918,662 81.3 3.4 Retail: 1-4 family mortgages 750,526 15.3 790,857 16.4 ( 5.1 ) Other consumer loans 114,631 2.3 112,369 2.3 2.0 Total retail 865,157 17.6 903,226 18.7 ( 4.2 ) Total loans $ 4,915,553 100.0 % $ 4,821,888 100.0 % 1.9 % (Continued) 18 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Age analyses of past due loans were as follows: Recorded Greater Balance 30 – 59 60 – 89 Than 89 > 89 Days Days Days Total Total Days and (Dollars in thousands) Past Due Past Due Past Due Past Due Current Loans Accruing June 30, 2026 Commercial: Commercial and industrial $ 0 $ 0 $ 0 $ 0 $ 1,537,029 $ 1,537,029 $ 0 Vacant land, land development, and residential construction 73 0 147 220 119,167 119,387 0 Real estate – owner occupied 134 0 289 423 803,460 803,883 0 Real estate – non- owner occupied 0 0 0 0 1,091,844 1,091,844 0 Real estate – multi-family and residential rental 0 0 0 0 498,253 498,253 0 Total commercial 207 0 436 643 4,049,753 4,050,396 0 Retail: 1-4 family mortgages 58 1,218 124 1,400 749,126 750,526 0 Other consumer loans 196 4 24 224 114,407 114,631 0 Total retail 254 1,222 148 1,624 863,533 865,157 0 Total past due loans $ 461 $ 1,222 $ 584 $ 2,267 $ 4,913,286 $ 4,915,553 $ 0 December 31, 2025 Commercial: Commercial and industrial $ 294 $ 0 $ 0 $ 294 $ 1,374,228 $ 1,374,522 $ 0 Vacant land, land development, and residential construction 67 0 0 67 117,306 117,373 0 Real estate – owner occupied 219 0 29 248 778,621 778,869 0 Real estate – non-owner occupied 0 0 2,732 2,732 1,107,942 1,110,674 0 Real estate – multi-family and residential rental 0 0 0 0 537,224 537,224 0 Total commercial 580 0 2,761 3,341 3,915,321 3,918,662 0 Retail: 1-4 family mortgages 992 409 156 1,557 789,300 790,857 0 Other consumer loans 585 40 5 630 111,739 112,369 0 Total retail 1,577 449 161 2,187 901,039 903,226 0 Total past due loans $ 2,157 $ 449 $ 2,922 $ 5,528 $ 4,816,360 $ 4,821,888 $ 0 (Continued) 19 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Nonaccrual loans were as follows: June 30, 2026 December 31, 2025 Recorded Recorded Principal Related Principal Related (Dollars in thousands) Balance Allowance Balance Allowance With no allowance recorded: Commercial: Commercial and industrial $ 159 $ 0 $ 170 $ 0 Vacant land, land development and residential construction 210 0 201 0 Real estate – owner occupied 743 0 517 0 Real estate – non-owner occupied 0 0 0 0 Real estate – multi-family and residential rental 0 0 0 0 Total commercial 1,112 0 888 0 Retail: 1-4 family mortgages 2,860 0 1,892 0 Other consumer loans 97 0 81 0 Total retail 2,957 0 1,973 0 Total with no allowance recorded $ 4,069 $ 0 $ 2,861 $ 0 With an allowance recorded: Commercial: Commercial and industrial $ 783 $ 758 $ 1,223 $ 1,063 Vacant land, land development and residential construction 0 0 0 0 Real estate – owner occupied 0 0 0 0 Real estate – non-owner occupied 0 0 2,732 2,732 Real estate – multi-family and residential rental 0 0 0 0 Total commercial 783 758 3,955 3,795 Retail: 1-4 family mortgages 951 177 1,054 224 Other consumer loans 0 0 0 0 Total retail 951 177 1,054 224 Total with an allowance recorded $ 1,734 $ 935 $ 5,009 $ 4,019 Total nonaccrual loans: Commercial $ 1,895 $ 758 $ 4,843 $ 3,795 Retail 3,908 177 3,027 224 Total nonaccrual loans $ 5,803 $ 935 $ 7,870 $ 4,019 Nonaccrual loans represent the entire balance of collateral dependent loans. As of June 30, 2026 , and December 31, 2025 , all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment. Interest income recognized on nonaccrual loans totaled $ 0.5 million and $ 0.3 million during the six months ended June 30, 2026, and 2025 , respectively, reflecting the collection of interest at the time of principal pay off. (Continued) 20 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The primary risk elements with respect to commercial loans are the financial condition of the borrower, sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. All commercial loans are graded using the following criteria: Grade 1. “Exceptional” Loans with this rating contain very little, if any, risk. Grade 2. “Outstanding” Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements. Grade 3. “Very Good” Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable. Grade 4. “Good” Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest. Grade 5. “Acceptable” Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are loans for which repayment risks are satisfactory. Grade 6. “Monitor” Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report. Grade 7. “Special Mention” Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date. Grade 8. “Substandard” Loans with this rating are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected. Grade 9. “Doubtful” Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable. Grade 10. “Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position. Retail loans that reach 90 days or more past due are generally placed into nonaccrual status and are categorized as nonperforming. (Continued) 21 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3 . LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table reflects amortized cost basis of loans as of June 30, 2026 , and loan charge-offs during the six months ended June 30, 2026 , based on year of origination: Revolving Grand (Dollars in thousands) 2026 2025 2024 2023 2022 Prior Term Total Loans Total Commercial: Commercial and Industrial: Grades 1 – 4 $ 59,146 $ 71,218 $ 40,715 $ 27,660 $ 6,246 $ 41,983 $ 246,968 $ 475,717 $ 722,685 Grades 5 – 7 68,792 93,854 109,112 30,939 11,036 7,091 320,824 472,465 793,289 Grades 8 – 9 8,402 0 0 878 0 318 9,598 11,457 21,055 Total $ 136,340 $ 165,072 $ 149,827 $ 59,477 $ 17,282 $ 49,392 $ 577,390 $ 959,639 $ 1,537,029 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 8 $ 0 $ 0 $ 8 $ 0 $ 8 Vacant Land, Land Development and Residential Construction: Grades 1 – 4 $ 15,327 $ 13,035 $ 1,569 $ 1,198 $ 4,150 $ 8,015 $ 43,294 $ 10,872 $ 54,166 Grades 5 – 7 10,373 30,188 12,112 1,437 3,931 4,794 62,835 2,176 65,011 Grades 8 – 9 0 0 0 0 0 210 210 0 210 Total $ 25,700 $ 43,223 $ 13,681 $ 2,635 $ 8,081 $ 13,019 $ 106,339 $ 13,048 $ 119,387 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Owner Occupied: Grades 1 – 4 $ 66,796 $ 131,568 $ 102,655 $ 50,905 $ 68,957 $ 63,123 $ 484,004 $ 5,548 $ 489,552 Grades 5 – 7 69,694 79,362 51,022 49,271 31,043 22,759 303,151 2,634 305,785 Grades 8 – 9 2,117 0 1,542 3,402 0 1,485 8,546 0 8,546 Total $ 138,607 $ 210,930 $ 155,219 $ 103,578 $ 100,000 $ 87,367 $ 795,701 $ 8,182 $ 803,883 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Non-Owner Occupied: Grades 1 – 4 $ 45,326 $ 66,311 $ 68,600 $ 53,676 $ 78,861 $ 115,628 $ 428,402 $ 7,397 $ 435,799 Grades 5 – 7 131,340 105,191 143,136 146,395 56,244 68,815 651,121 4,924 656,045 Grades 8 – 9 0 0 0 0 0 0 0 0 0 Total $ 176,666 $ 171,502 $ 211,736 $ 200,071 $ 135,105 $ 184,443 $ 1,079,523 $ 12,321 $ 1,091,844 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Multi-Family and Residential Rental: Grades 1 – 4 $ 28,586 $ 32,020 $ 9,756 $ 16,263 $ 12,962 $ 41,931 $ 141,518 $ 4,861 $ 146,379 Grades 5 – 7 167,666 101,501 48,533 13,123 14,272 6,779 351,874 0 351,874 Grades 8 – 9 0 0 0 0 0 0 0 0 0 Total $ 196,252 $ 133,521 $ 58,289 $ 29,386 $ 27,234 $ 48,710 $ 493,392 $ 4,861 $ 498,253 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Commercial $ 673,565 $ 724,248 $ 588,752 $ 395,147 $ 287,702 $ 382,931 $ 3,052,345 $ 998,051 $ 4,050,396 Total Commercial year-to-date gross write offs $ 0 $ 0 $ 0 $ 8 $ 0 $ 0 $ 8 $ 0 $ 8 Retail: 1-4 Family Mortgages: Performing $ 38,414 $ 61,729 $ 39,835 $ 83,893 $ 259,194 $ 262,720 $ 745,785 $ 930 $ 746,715 Nonperforming 0 0 226 437 1,014 2,134 3,811 0 3,811 Total $ 38,414 $ 61,729 $ 40,061 $ 84,330 $ 260,208 $ 264,854 $ 749,596 $ 930 $ 750,526 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Consumer Loans: Performing $ 2,305 $ 5,678 $ 6,180 $ 5,385 $ 2,297 $ 1,401 $ 23,246 $ 91,288 $ 114,534 Nonperforming 0 0 19 0 14 64 97 0 97 Total $ 2,305 $ 5,678 $ 6,199 $ 5,385 $ 2,311 $ 1,465 $ 23,343 $ 91,288 $ 114,631 Year-to-date gross write offs $ 0 $ 2 $ 0 $ 0 $ 0 $ 0 $ 2 $ 5 $ 7 Total Retail $ 40,719 $ 67,407 $ 46,260 $ 89,715 $ 262,519 $ 266,319 $ 772,939 $ 92,218 $ 865,157 Total Retail year-to-date gross write offs $ 0 $ 2 $ 0 $ 0 $ 0 $ 0 $ 2 $ 5 $ 7 Total $ 714,284 $ 791,655 $ 635,012 $ 484,862 $ 550,221 $ 649,250 $ 3,825,284 $ 1,090,269 $ 4,915,553 Total year-to-date gross write offs $ 0 $ 2 $ 0 $ 8 $ 0 $ 0 $ 10 $ 5 $ 15 There were lines of credit with principal balances of $ 5.6 million as of December 31, 2025, that were converted to term loans during the first six months of 2026 . (Continued) 22 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table reflects amortized cost basis of loans as of December 31, 2025 , and loan charge-offs during the six months ended June 30, 2025 , based on year of origination: Revolving Grand (Dollars in thousands) 2025 2024 2023 2022 2021 Prior Term Total Loans Total Commercial: Commercial and Industrial: Grades 1 – 4 $ 82,163 $ 57,225 $ 38,063 $ 12,554 $ 35,423 $ 14,878 $ 240,306 $ 415,084 $ 655,390 Grades 5 – 7 143,638 125,617 46,445 23,137 5,396 3,092 347,325 357,379 704,704 Grades 8 – 9 2,189 0 732 0 0 327 3,248 11,180 14,428 Total $ 227,990 $ 182,842 $ 85,240 $ 35,691 $ 40,819 $ 18,297 $ 590,879 $ 783,643 $ 1,374,522 Year-to-date gross write offs $ 0 $ 4 $ 0 $ 0 $ 0 $ 0 $ 4 $ 7 $ 11 Vacant Land, Land Development and Residential Construction: Grades 1 – 4 $ 22,242 $ 4,849 $ 1,703 $ 7,676 $ 2,410 $ 6,752 $ 45,632 $ 10,283 $ 55,915 Grades 5 – 7 37,052 13,281 1,635 2,295 520 5,743 60,526 731 61,257 Grades 8 – 9 0 0 0 0 201 0 201 0 201 Total $ 59,294 $ 18,130 $ 3,338 $ 9,971 $ 3,131 $ 12,495 $ 106,359 $ 11,014 $ 117,373 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Owner Occupied: Grades 1 – 4 $ 135,403 $ 137,672 $ 51,266 $ 77,169 $ 66,198 $ 18,302 $ 486,010 $ 7,686 $ 493,696 Grades 5 – 7 81,750 59,874 51,642 53,479 20,585 9,085 276,415 1,285 277,700 Grades 8 – 9 0 0 3,502 2,674 0 1,297 7,473 0 7,473 Total $ 217,153 $ 197,546 $ 106,410 $ 133,322 $ 86,783 $ 28,684 $ 769,898 $ 8,971 $ 778,869 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Non-Owner Occupied: Grades 1 – 4 $ 93,669 $ 83,447 $ 55,500 $ 65,525 $ 73,727 $ 53,148 $ 425,016 $ 9,709 $ 434,725 Grades 5 – 7 145,795 153,731 170,018 77,964 69,335 51,411 668,254 4,963 673,217 Grades 8 – 9 2,732 0 0 0 0 0 2,732 0 2,732 Total $ 242,196 $ 237,178 $ 225,518 $ 143,489 $ 143,062 $ 104,559 $ 1,096,002 $ 14,672 $ 1,110,674 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Real Estate – Multi-Family and Residential Rental: Grades 1 – 4 $ 40,264 $ 13,603 $ 32,341 $ 9,449 $ 32,465 $ 23,399 $ 151,521 $ 0 $ 151,521 Grades 5 – 7 165,703 55,785 128,190 27,959 1,862 6,204 385,703 0 385,703 Grades 8 – 9 0 0 0 0 0 0 0 0 0 Total $ 205,967 $ 69,388 $ 160,531 $ 37,408 $ 34,327 $ 29,603 $ 537,224 $ 0 $ 537,224 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Commercial $ 952,600 $ 705,084 $ 581,037 $ 359,881 $ 308,122 $ 193,638 $ 3,100,362 $ 818,300 $ 3,918,662 Total Commercial year-to-date gross write offs $ 0 $ 4 $ 0 $ 0 $ 0 $ 0 $ 4 $ 7 $ 11 Retail: 1-4 Family Mortgages: Performing $ 62,063 $ 52,546 $ 102,023 $ 280,078 $ 181,242 $ 107,389 $ 785,341 $ 2,570 $ 787,911 Nonperforming 0 241 451 1,047 347 860 2,946 0 2,946 Total $ 62,063 $ 52,787 $ 102,474 $ 281,125 $ 181,589 $ 108,249 $ 788,287 $ 2,570 $ 790,857 Year-to-date gross write offs $ 0 $ 0 $ 0 $ 22 $ 61 $ 3 $ 86 $ 0 $ 86 Other Consumer Loans: Performing $ 6,574 $ 8,299 $ 7,056 $ 3,358 $ 1,274 $ 894 $ 27,455 $ 84,833 $ 112,288 Nonperforming 0 0 0 9 5 42 56 25 81 Total $ 6,574 $ 8,299 $ 7,056 $ 3,367 $ 1,279 $ 936 $ 27,511 $ 84,858 $ 112,369 Year-to-date gross write offs $ 0 $ 2 $ 2 $ 0 $ 0 $ 0 $ 4 $ 0 $ 4 Total Retail $ 68,637 $ 61,086 $ 109,530 $ 284,492 $ 182,868 $ 109,185 $ 815,798 $ 87,428 $ 903,226 Total Retail year-to-date gross write offs $ 0 $ 2 $ 2 $ 22 $ 61 $ 3 $ 90 $ 0 $ 90 Total $ 1,021,237 $ 766,170 $ 690,567 $ 644,373 $ 490,990 $ 302,823 $ 3,916,160 $ 905,728 $ 4,821,888 Total year-to-date gross write offs $ 0 $ 6 $ 2 $ 22 $ 61 $ 3 $ 94 $ 7 $ 101 There were lines of credit with principal balances of $ 0.7 million as of December 31, 2024 , that were converted to term loans during 2025. (Continued) 23 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) We use a migration to loss methodology to determine historical loss rates for commercial loans given the comprehensive loan grading process employed by Mercantile for over two decades, while an open pool approach is best suited for retail loans given the smaller dollar size of the segments. A baseline loss rate is produced at each reporting date for each loan portfolio segment using bank-specific loan charge-off and recovery data over a defined historical look-back period. The look-back period represents the number of data periods that will be used to calculate a baseline loss rate for each loan portfolio segment. We determined that the look-back period commencing on January 1, 2011, through the current reporting date was reasonable and appropriate, which was used in the calculation of both the June 30, 2026 , and December 31, 2025 , allowance for credit losses. Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss. Our prepayment speed assumptions are developed at the loan segment level based upon the consideration of all relevant data which we believe could impact anticipated customer behavior, including changes in interest rates, economic conditions, and underlying property valuations. For the commercial portfolio segments, we assumed a 2.0 % prepayment speed as of both June 30, 2026 , and December 31, 2025 , as we deemed there to be no considerable changes from historical experience. For the retail 1 - 4 family mortgage and retail other consumer portfolios, we used a prepayment speed of 9.5 % as of both June 30, 2026 , and December 31, 2025 . During each reporting period, we also consider the need to adjust the historical loss rates as determined to reflect the extent to which we expect current conditions and reasonable and supportable economic forecasts to differ from the conditions that existed for the period over which the historical loss information was determined. These qualitative adjustments may increase or decrease our estimate of expected future credit losses. As of June 30, 2026 , and December 31, 2025 , we used a one -year reasonable and supportable economic forecast period, with a six -month straight-line reversion period for all loan segments. The economic forecasts used for our June 30, 2026 , allowance calculation reflected a $ 0.4 million allowance balance reduction. The forecasts used for our December 31, 2025 , allowance calculation reflected a $ 0.3 million allowance balance reduction. The allowance for PSL and PCD loans acquired from the acquisition of Eastern Michigan Financial Corporation and its wholly owned banking subsidiary, Eastern Michigan Bank, was 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 differentiated the loans from other loans within the loan segments and were evaluated for expected credit losses on an individual basis, totaled $ 4.6 million and $ 7.9 million as of June 30, 2026 , and December 31, 2025 , respectively. Individual allowance allocations totaled $ 0.9 million and $ 4.0 million as of June 30, 2026 , and December 31, 2025 , respectively. Activity in the allowance for credit losses during the three and six months ended June 30, 2026, and 2025 , were as follows: (Dollars in thousands) Commercial and industrial Commercial vacant land, land development and residential construction Commercial real estate – owner occupied Commercial real estate – non-owner occupied Commercial real estate – multi-family and residential rental 1-4 family mortgages Other consumer loans Unallocated Total Balance at 3-31-2026 $ 12,824 $ 545 $ 7,845 $ 14,661 $ 4,685 $ 13,464 $ 2,690 $ 23 $ 56,737 Provision for credit losses 740 ( 12 ) 199 ( 2,485 ) 368 ( 803 ) 108 85 ( 1,800 ) Charge-offs ( 8 ) 0 0 0 0 0 ( 2 ) 0 ( 10 ) Recoveries 217 13 4 228 4 38 10 0 514 Balance at 6-30-2026 $ 13,773 $ 546 $ 8,048 $ 12,404 $ 5,057 $ 12,699 $ 2,806 $ 108 $ 55,441 Balance at 12-31-2025 $ 12,576 $ 478 $ 7,629 $ 15,074 $ 5,514 $ 14,199 $ 2,638 $ 83 $ 58,191 Provision for credit losses 832 19 405 ( 2,898 ) ( 465 ) ( 1,668 ) 150 25 ( 3,600 ) Charge-offs ( 8 ) 0 0 0 0 0 ( 7 ) 0 ( 15 ) Recoveries 373 49 14 228 8 168 25 0 865 Balance at 6-30-2026 $ 13,773 $ 546 $ 8,048 $ 12,404 $ 5,057 $ 12,699 $ 2,806 $ 108 $ 55,441 Balance at 3-31-2025 $ 11,798 $ 386 $ 7,679 $ 11,946 $ 3,878 $ 18,874 $ 2,102 $ 3 $ 56,666 Provision for credit losses ( 39 ) 0 11 1,854 416 ( 989 ) 207 140 1,600 Charge-offs ( 11 ) 0 0 0 0 ( 25 ) ( 2 ) 0 ( 38 ) Recoveries 23 1 1 0 3 105 14 0 147 Balance at 6-30-2025 $ 11,771 $ 387 $ 7,691 $ 13,800 $ 4,297 $ 17,965 $ 2,321 $ 143 $ 58,375 Balance at 12-31-2024 $ 11,165 $ 367 $ 7,671 $ 10,919 $ 3,667 $ 18,702 $ 1,936 $ 27 $ 54,454 Provision for credit losses 559 18 17 2,881 622 ( 803 ) 290 116 3,700 Charge-offs ( 11 ) 0 0 0 0 ( 86 ) ( 4 ) 0 ( 101 ) Recoveries 58 2 3 0 8 152 99 0 322 Balance at 6-30-2025 $ 11,771 $ 387 $ 7,691 $ 13,800 $ 4,297 $ 17,965 $ 2,321 $ 143 $ 58,375 (Continued) 24 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the three months ended June 30, 2026 : Interest Rate Principal (Dollars in thousands) Reduction Term Extension Forgiveness Commercial: Commercial and industrial $ 0 $ 5,824 $ 0 Vacant land, land development and residential construction 0 0 0 Real estate – owner occupied 0 2,117 0 Real estate – non-owner occupied 0 0 0 Real estate – multi-family and residential rental 0 0 0 Total commercial $ 0 $ 7,941 $ 0 Retail: 1-4 family mortgages 0 0 0 Other consumer loans 0 0 0 Total retail $ 0 $ 0 $ 0 Total loans $ 0 $ 7,941 $ 0 The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the six months ended June 30, 2026 : Interest Rate Principal (Dollars in thousands) Reduction Term Extension Forgiveness Commercial: Commercial and industrial $ 0 $ 7,001 $ 0 Vacant land, land development and residential construction 0 0 0 Real estate – owner occupied 0 2,117 0 Real estate – non-owner occupied 0 0 0 Real estate – multi-family and residential rental 0 0 0 Total commercial $ 0 $ 9,118 $ 0 Retail: 1-4 family mortgages 0 0 0 Other consumer loans 0 0 0 Total retail $ 0 $ 0 $ 0 Total loans $ 0 $ 9,118 $ 0 The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the three months ended June 30, 2025 : Interest Rate Principal (Dollars in thousands) Reduction Term Extension Forgiveness Commercial: Commercial and industrial $ 0 $ 20 $ 0 Vacant land, land development and residential construction 0 0 0 Real estate – owner occupied 0 0 0 Real estate – non-owner occupied 0 0 0 Real estate – multi-family and residential rental 0 0 0 Total commercial $ 0 $ 20 $ 0 Retail: 1-4 family mortgages 0 0 0 Other consumer loans 0 0 0 Total retail $ 0 $ 0 $ 0 Total loans $ 0 $ 20 $ 0 (Continued) 25 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during the six months ended June 30, 2025 : Interest Rate Principal (Dollars in thousands) Reduction Term Extension Forgiveness Commercial: Commercial and industrial $ 0 $ 20 $ 0 Vacant land, land development and residential construction 0 0 0 Real estate – owner occupied 0 0 0 Real estate – non-owner occupied 0 0 0 Real estate – multi-family and residential rental 0 0 0 Total commercial $ 0 $ 20 $ 0 Retail: 1-4 family mortgages 0 0 0 Other consumer loans 0 0 0 Total retail $ 0 $ 0 $ 0 Total loans $ 0 $ 20 $ 0 The following table presents the amortized cost basis of loans that have been modified in the past twelve months to borrowers experiencing financial difficulty by payment status and loan segment as of June 30, 2026 : 30 – 89 Days 90 + Days (Dollars in thousands) Current Past Due Past Due Total Commercial: Commercial and industrial $ 11,712 $ 0 $ 0 $ 11,712 Vacant land, land development and residential construction 0 0 0 0 Real estate – owner occupied 2,346 0 0 2,346 Real estate – non-owner occupied 0 0 0 0 Real estate – multi-family and residential rental 0 0 0 0 Total commercial $ 14,058 $ 0 $ 0 $ 14,058 Retail: 1-4 family mortgages 0 0 0 0 Other consumer loans 0 0 0 0 Total retail $ 0 $ 0 $ 0 $ 0 Total loans $ 14,058 $ 0 $ 0 $ 14,058 (Continued) 26 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. PREMISES AND EQUIPMENT, NET Premises and equipment are comprised of the following: June 30, December 31, (Dollars in thousands) 2026 2025 Land and improvements $ 16,250 $ 16,250 Buildings 68,600 68,733 Furniture and equipment 30,720 31,585 115,570 116,568 Less: accumulated depreciation ( 54,843 ) ( 54,100 ) Premises and equipment, net $ 60,727 $ 62,468 Depreciation expense totaled $ 1.5 million and $ 1.3 million during the second quarters of 2026 and 2025 , respectively, and $ 2.9 million and $ 2.5 million during the six months ended June 30, 2026, and 2025 , respectively. We enter into facility leases in the normal course of business. As of June 30, 2026 , we were under lease contracts for eleven of our banking facilities. The leases have maturity dates ranging from August, 2026 through May, 2048, with a weighted average life of 9.5 years as of June 30, 2026 . All of our leases have multiple three - to five -year extensions; however, these were not factored in the lease maturities and weighted average lease term as it was not reasonably certain we would exercise the options on the dates we entered into the lease agreements. Leases are classified as either operating or finance leases at the lease commencement date, with all of our current leases determined to be operating leases. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use underlying assets for the lease terms, while lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at the lease commencement date at the estimated present value of lease payments over the lease term. We use our incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments. The weighted average discount rate for leases was 6.52 % as of June 30, 2026 . The right-of-use assets, included in premises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included in other liabilities on our Consolidated Balance Sheets, totaled $ 3.4 million and $ 3.9 million as of June 30, 2026 , and December 31, 2025 , respectively. As permitted by applicable accounting standards, we have elected not to recognize short-term leases with original terms of twelve months or less on our Consolidated Balance Sheets. Total operating lease expense associated with the leases aggregated $ 0.3 million during the second quarters of both 2026 and 2025 and $ 0.6 million during both the six months ended June 30, 2026, and 2025 . Future lease payments were as follows as of June 30, 2026 : (Dollars in thousands) 2026 $ 592 2027 1,119 2028 942 2029 738 2030 73 Thereafter 1,141 Total undiscounted lease payments 4,605 Less effect of discounting ( 1,181 ) Present value of future lease payments (lease liability) $ 3,424 (Continued) 27 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. DEPOSITS Our total deposits at June 30, 2026 , were $ 5.30 billion, an increase of $ 11.9 million, or 0.2 %, from December 31, 2025 . The components of our outstanding balances at June 30, 2026 , and December 31, 2025 , and percentage change in deposits from the end of 2025 to the end of the second quarter of 2026 , are as follows: Percent June 30, 2026 December 31, 2025 Increase (Dollars in thousands) Balance % Balance % (Decrease) Noninterest-bearing checking $ 1,420,591 26.8 % $ 1,339,666 25.4 % 6.0 % Interest-bearing checking 947,025 17.9 957,598 18.1 ( 1.1 ) Money market 1,739,252 32.8 1,697,604 32.1 2.5 Savings 321,405 6.1 310,227 5.9 3.6 Time Deposits 848,030 16.0 848,844 16.1 ( 0.1 ) Total local deposits 5,276,303 99.6 5,153,939 97.6 2.4 Out-of-area time, $100,000 and over 20,085 0.4 130,513 2.4 ( 84.6 ) Total deposits $ 5,296,388 100.0 % $ 5,284,452 100.0 % 0.2 % 6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements is as follows: Six Months Ended Twelve Months Ended (Dollars in thousands) June 30, 2026 December 31, 2025 Outstanding balance at end of period $ 217,470 $ 232,291 Average interest rate at end of period 2.68 % 2.80 % Average daily balance during the period $ 222,847 $ 239,089 Average interest rate during the period 2.68 % 3.12 % Maximum daily balance during the period $ 257,040 $ 285,679 Repurchase agreements have maturities of one business day. Repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities on our Consolidated Balance Sheets. Repurchase agreements are secured by U.S. Government agency securities with an aggregate fair value equal to the aggregate outstanding balance of the repurchase agreements. The securities, which are included in securities available for sale on our Consolidated Balance Sheets, are held in safekeeping by a correspondent bank. (Continued) 28 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. OTHER BORROWINGS FHLBI bullet advances totaled $ 280 million at June 30, 2026 , and were scheduled to mature at varying dates from September 2026 through April 2031 , with fixed rates of interest from 0.95 % to 4.50 % and averaging 3.41 %. FHLBI bullet advances totaled $ 300 million at December 31, 2025 , and were scheduled 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 %. Maturities of FHLBI bullet advances as of June 30, 2026 , were as follows: (Dollars in thousands) 2026 $ 30,000 2027 100,000 2028 90,000 2029 10,000 2030 20,000 Thereafter 30,000 FHLBI amortizing advances totaled $ 25.3 million as of June 30, 2026 , with an average rate of 2.52 % and with final maturities in 2042 . FHLBI amortizing advances totaled $ 26.2 million as of December 31, 2025 , with an average rate of 2.52 % and with final maturities in 2042 . FHLBI amortizing advances are obtained periodically to assist in managing interest rate risk associated with certain longer-term fixed rate commercial loans, with annual principal payments that closely align with the scheduled amortization of the underlying commercial loans. Scheduled principal payments on FHLBI amortizing advances as of June 30, 2026 , were as follows: (Dollars in thousands) 2026 $ 0 2027 938 2028 979 2029 1,021 2030 1,065 Thereafter 21,319 Each advance is payable at its maturity date and 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 Mercantile Bank under a blanket lien arrangement. Our borrowing line of credit as of June 30, 2026 , totaled $ 1.16 billion, with remaining availability based on collateral of $ 847 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 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. 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 note 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. Principal shall be paid in quarterly installments of $ 2.5 million each. The term note matures on December 24, 2028. Mercantile is permitted to prepay the term note in full or in part at any time without indemnity, premium or penalty. (Continued) 29 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. STOCK-BASED COMPENSATION Stock-based compensation plans are used to provide directors and employees with an increased incentive to contribute to our long-term performance and growth, to align the interests of directors and employees with the interests of our shareholders through the opportunity for increased stock ownership and to attract and retain directors and employees. Stock-based compensation expense, reported as noninterest expense in the Consolidated Statements of Income, totaled $ 2.0 million and $ 1.7 million during the six months ended June 30, 2026, and 2025 , respectively. The Stock Incentive Plan of 2020 was approved by shareholders in May, 2020, and was effectively replaced with the Stock Incentive Plan of 2023 that was approved by shareholders in May, 2023. Under the Stock Incentive Plans of 2020 and 2023, incentive awards may include, but are not limited to, stock options, restricted stock, stock appreciation rights and stock awards. Price, vesting and expiration date parameters are determined by Mercantile’s Compensation Committee on a grant-by-grant basis. No payments are required from employees for restricted stock awards. The restricted stock awards granted through the plan fully vest after three years and, in the case of performance-based restricted stock issued to executive officers issued under the plan, are subject to the attainment of pre-determined performance goals. A summary of restricted stock activity during the six months ended June 30, 2026 , is as follows: Weighted Average Shares Fair Value Nonvested at beginning of the period 199,401 $ 43.31 Grants 91,443 54.05 Vested ( 30,096 ) 32.27 Forfeited ( 4,393 ) 49.59 Nonvested at end of the period 256,355 $ 48.33 Of the restricted stock shares granted during the six months ended June 30, 2026 , 17,422 shares are performance-based awards made to our Named Executive Officers at the target level and are subject to the attainment of pre-determined performance goals. As of June 30, 2026 , there were approximately 197,000 shares authorized for future incentive awards, and as of December 31, 2025 , there were approximately 293,000 shares authorized for future incentive awards. We periodically grant shares of common stock to our corporate and bank Directors for retainer payments with the related expense being recorded over the period of the Directors' service, as summarized below: Total Cost Grant Year Shares Granted (in thousands) Covered Period 2024 11,316 $ 423 June 1, 2024 - May 31, 2025 2025 10,007 444 June 1, 2025 - May 31, 2026 2026 321 16 Jan 1, 2026 - May 31, 2026 2026 8,676 456 June 1, 2026 - May 31, 2027 In March 2025, the Company adopted the 2025 Employee Stock Purchase Plan ("ESPP"), offering a 5 % discount on the market price of the Company's common stock. The ESPP was approved by the Company's shareholders on May 22, 2025. The Company reserved 200,000 shares of common stock for future issuance under the ESPP, subject to adjustment. All present and future active and full-time employees of the Company or its subsidiaries are eligible to participate in the ESPP, other than temporary employees, interns, and officers subject to Section 16 of the Securities and Exchange Act of 1934, as amended. Eligible employees can purchase shares on each quarterly purchase date through payroll deductions of not less than $ 5 nor more than $ 200 . The purchase price will be the lower of 95 % of the fair market value of the Company's stock at the commencement of the offering period or the fair market value of a share of common stock on the stock purchase date. Each offering period spans three months, with the first offering period beginning on July 1, 2025. As of June 30, 2026 , 195,000 shares were reserved for future issuance under the ESPP. (Continued) 30 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. COMMITMENTS AND OFF-BALANCE SHEET RISK We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on management’s credit assessment of the borrower. We are required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheets and is increased or decreased via other noninterest expense on our Consolidated Statements of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded. For commercial lines of credit, retail lines of credit and credit card average outstanding balances, we determined allowance requirements by calculating the difference between the average percent outstanding of the funded commitments over the past several years to actual percent outstanding at the end of the period and applying the respective expected loss allocation factors to the difference as this difference represents the average of unfunded commitments we expect to eventually be drawn upon. For commitments to make loans, we determine an allowance by applying the expected loss allocation factor to the amount expected to be funded. The calculated allowance aggregated $ 1.9 million and $ 2.3 million as of June 30, 2026 , and December 31, 2025 , respectively. We do not reserve for residential mortgage construction loans, as the loans are for one year or less and draws are governed by the receipt and satisfactory review of contractor and subcontractor sworn statements, lien waivers and title insurance company endorsements. Letters of credit are rarely drawn. At June 30, 2026 , and December 31, 2025 , the rates on existing off-balance sheet instruments were substantially equivalent to current market rates, considering the underlying credit standing of the counterparties. A summary of the contractual amounts of our financial instruments with off-balance sheet risk at June 30, 2026 , and December 31, 2025 , is as follows: June 30, December 31, (Dollars in thousands) 2026 2025 Commercial unused lines of credit $ 1,625,477 $ 1,755,132 Unused lines of credit secured by 1–4 family residential properties 110,918 135,021 Credit card unused lines of credit 212,045 204,783 Other consumer unused lines of credit 49,508 53,124 Commitments to make loans 233,900 204,432 Standby letters of credit 34,116 26,813 $ 2,265,964 $ 2,379,305 (Continued) 31 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 10. DERIVATIVES AND HEDGING ACTIVITIES We are exposed to certain risks arising from both business operations and economic conditions. We principally manage the exposure to a wide variety of operational risks through core business activities. Economic risks, including interest rate, liquidity and credit risk, are primarily administered via the amount, sources and duration of assets and liabilities. Derivative financial instruments may also be used to assist in managing economic risks. Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. We execute interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with correspondent banks to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent banks are recognized directly to earnings. Fees paid to us by the correspondent banks are recognized as noninterest income on our Consolidated Statements of Income on the settlement dates. The fair values of derivative instruments are reflected in the following table. Balance Sheet (Dollars in thousands) Notional Amount Location Fair Value June 30, 2026 Derivative Assets Interest rate swaps $ 942,025 Other Assets $ 16,923 Derivative Liabilities Interest rate swaps 939,998 Other Liabilities 17,126 December 31, 2025 Derivative Assets Interest rate swaps $ 961,474 Other Assets $ 23,212 Derivative Liabilities Interest rate swaps 959,447 Other Liabilities 23,532 The effect of interest rate swaps that are not designated as hedging instruments resulted in income of $ 0.1 million and expense of $ 0.2 million during the six months ended June 30, 2026, and 2025 , respectively, that were recorded in other noninterest expense on our Consolidated Statements of Income. We have master netting arrangements with our correspondent banks that allow us to net receivables and payables. The netting agreement also allows us to net related cash collateral received and transferred up to the fair value exposure amount. We have elected to not offset these transactions on the Consolidated Balance Sheets. The netting of derivative instruments is presented in the following table. Gross Amounts Not Offset on the Consolidated Balance Sheet (Dollars in thousands) Net Amounts Recognized Financial Instruments Cash Collateral Received or Posted Net Amount June 30, 2026 Derivative Assets Interest rate swaps $ 16,923 $ 2,664 $ 8,350 $ 5,909 Derivative Liabilities Interest rate swaps 17,126 2,650 1,590 12,886 December 31, 2025 Derivative Assets Interest rate swaps $ 23,212 $ 9,711 $ 1,540 $ 11,961 Derivative Liabilities Interest rate swaps 23,532 9,711 6,900 6,921 (Continued) 32 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 11. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows: Level in June 30, 2026 December 31, 2025 Fair Value Carrying Fair Carrying Fair (Dollars in thousands) Hierarchy Values Values Values Values Financial assets: Cash and cash equivalents Level 1 $ 340,931 $ 340,931 $ 473,324 $ 473,324 Securities available for sale (1) 1,125,529 1,125,529 1,102,230 1,102,230 FHLBI stock (2) 22,099 22,099 22,099 22,099 Loans, net Level 3 4,860,112 4,898,266 4,763,697 4,830,844 Mortgage loans held for sale Level 2 31,272 31,783 17,160 17,319 Accrued interest receivable Level 2 23,685 23,685 23,638 23,638 Interest rate swaps Level 2 16,923 16,923 23,212 23,212 Financial liabilities: Deposits Level 2 5,296,388 4,634,787 5,284,452 5,024,489 Securities sold under agreements to repurchase Level 2 217,470 217,470 232,291 232,291 FHLBI advances Level 2 305,322 297,864 326,221 321,069 Subordinated debentures Level 2 51,358 58,076 51,015 51,019 Subordinated notes Level 2 89,829 87,813 89,657 86,826 Term note Level 2 25,000 25,000 30,000 30,000 Accrued interest payable Level 2 7,208 7,208 9,921 9,921 Interest rate swaps Level 2 17,126 17,126 23,532 23,532 ( 1 ) See Note 12 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities. ( 2 ) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount. Carrying amount is the estimated fair value for cash and cash equivalents, FHLBI stock, accrued interest receivable and payable, noninterest-bearing checking accounts and securities sold under agreements to repurchase. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. Fair value for loans is based on an exit price model as required by ASU 2016 - 01, taking into account inputs such as discounted cash flows, probability of default and loss given default assumptions. The fair value for deposit accounts other than noninterest-bearing checking accounts is based on discounted cash flows using current market rates applied to the estimated life. The fair values of subordinated debentures, subordinated notes, and FHLBI advances are based on current rates for similar financing. The fair values of interest rate swaps are based on discounted cash flows using forecasted yield curves, along with insignificant unobservable inputs, such as borrower credit spreads. The fair value of other off-balance sheet items is estimated to be nominal. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. (Continued) 33 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 12. FAIR VALUES We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means. Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability. The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis: Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency debt obligations, mortgage-backed securities issued or guaranteed by U.S. Government agencies, and municipal general obligation and revenue bonds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information that becomes known to us necessitates an impairment. There was no such impairment as of June 30, 2026 , or December 31, 2025 . We have no Level 1 securities available for sale. Derivatives . We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves. Insignificant unobservable inputs, such as borrower credit spreads, are also utilized. Mortgage loans held for sale . Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of June 30, 2026 , and December 31, 2025 , we determined the fair value of our mortgage loans held for sale to be $ 31.8 million and $ 17.3 million, respectively. Loans . We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of significant borrower distress and on an ongoing basis until recovery or charge-off. The fair values of distressed loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates. Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates. The fair values of parcels of other real estate owned are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates. (Continued) 34 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 12. FAIR VALUES (Continued) Assets and Liabilities Measured at Fair Value on a Recurring Basis The balances of assets and liabilities measured at fair value on a recurring basis are as follows: Quoted Prices in Active Markets Significant for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Dollars in thousands) Total (Level 1) (Level 2) (Level 3) June 30, 2026 Available for sale securities U.S. Treasury notes and bonds $ 55,099 $ 0 $ 55,099 $ 0 U.S. Government agency debt obligations 687,508 0 687,508 0 Mortgage-backed securities 69,199 0 69,199 0 Municipal general obligation bonds 211,173 0 211,173 0 Municipal revenue bonds 63,628 0 63,628 0 Other investments 38,922 0 38,922 0 Interest rate swaps 16,923 0 16,923 0 Total assets $ 1,142,452 $ 0 $ 1,142,452 $ 0 Interest rate swaps 17,126 0 17,126 0 Total liabilities $ 17,126 $ 0 $ 17,126 $ 0 December 31, 2025 Available for sale securities U.S. Treasury notes and bonds $ 55,501 $ 0 $ 55,501 $ 0 U.S. Government agency debt obligations 639,773 0 639,773 0 Mortgage-backed securities 75,762 0 75,762 0 Municipal general obligation bonds 215,063 0 215,063 0 Municipal revenue bonds 65,004 0 65,004 0 Other investments 51,127 0 51,127 0 Interest rate swaps 23,212 0 23,212 0 Total assets $ 1,125,442 $ 0 $ 1,125,442 $ 0 Interest rate swaps 23,532 0 23,532 0 Total liabilities $ 23,532 $ 0 $ 23,532 $ 0 There were no sales, purchases or transfers in or out of Level 3 during the six months ended June 30, 2026, and 2025 . (Continued) 35 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 12. FAIR VALUES (Continued) Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The balances of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2026 , and December 31, 2025 , are as follows: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Dollars in thousands) Total (Level 1) (Level 2) (Level 3) June 30, 2026 Collateral dependent loans $ 799 $ 0 $ 0 $ 799 December 31, 2025 Collateral dependent loans $ 991 $ 0 $ 0 $ 991 The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on nonperforming loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. We generally assign a discount factor range of 25 % to 60 % for commercial real estate dependent loans and foreclosed assets, and a discount factor range of 25 % to 50 % for residential-related properties. In a vast majority of cases, we assign a 10 % discount factor for estimated selling costs. 13. 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. 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. (Continued) 36 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 13. BUSINESS COMBINATIONS (continued) 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. During the first quarter of 2026, purchase accounting adjustments were made to decrease the core deposit intangible asset by $ 1.3 million, decrease deferred tax liabilities by $ 0.3 million and increase goodwill by $ 1.0 million. The purchase accounting adjustments were made to the provisional amounts due to the finalization of a third -party valuation report and effective January 1, 2026. The following table summarizes the final 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, except per share data) Consideration: Cash $ 50,876 Common stock ( 924,999 shares issued at $ 48.55 per share) 44,909 Total consideration $ 95,785 Identifiable assets acquired Cash and due from banks $ 62,361 Interest-earning deposits 42,084 Securities available for sale 198,399 Loans, net 201,320 Premises and equipment 7,482 Core deposit intangible 19,038 Other assets 16,875 Total identifiable assets acquired 547,559 Identifiable liabilities assumed Deposits $ 474,898 Other liabilities 1,093 Total identifiable liabilities acquired 475,991 Net identifiable assets acquired $ 71,568 Goodwill $ 24,217 The following table presents supplemental pro-forma information as if the acquisition had occurred at the beginning of 2025. 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 expense 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 been effected on the assumed dates. Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share data) 2026 2025 2026 2025 Net interest income $ 57,143 $ 54,770 $ 112,928 $ 108,382 Provision for credit losses ( 1,800 ) 1,349 ( 3,600 ) 3,318 Noninterest income 11,498 11,968 23,189 21,149 Noninterest expense 39,109 37,598 80,744 72,953 Income before income taxes 31,332 27,791 58,973 53,260 Income tax expense 5,222 3,925 9,745 8,918 Net income $ 26,110 $ 23,866 $ 49,228 $ 44,342 Earnings per share $ 1.51 $ 1.39 $ 2.85 $ 2.59 (Continued) 37 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 14. REGULATORY MATTERS We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. As of June 30, 2026 , and December 31, 2025 , our banks were in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since June 30, 2026 , that we believe have changed our banks' categorizations. Our actual capital levels and the minimum levels required to be categorized as adequately and well capitalized were: Minimum Required to be Well Minimum Required Capitalized Under for Capital Prompt Corrective Actual Adequacy Purposes Action Regulations (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio June 30, 2026 Total capital (to risk weighted assets) Consolidated $ 896,267 14.7 % $ 489,330 8.0 % $ NA NA% Mercantile Bank 784,315 13.5 463,237 8.0 579,046 10.0 Eastern Michigan Bank 64,163 23.1 22,272 8.0 27,839 10.0 Tier 1 capital (to risk weighted assets) Consolidated 749,048 12.3 366,997 6.0 NA NA Mercantile Bank 729,188 12.6 347,428 6.0 463,237 8.0 Eastern Michigan Bank 61,900 22.2 16,704 6.0 22,272 8.0 Common equity tier 1 (to risk weighted assets) Consolidated 699,764 11.4 275,248 4.5 NA NA Mercantile Bank 729,188 12.6 260,571 4.5 376,380 6.5 Eastern Michigan Bank 61,900 22.2 12,528 4.5 18,096 6.5 Tier 1 capital (to average assets) Consolidated 749,048 11.0 271,356 4.0 NA NA Mercantile Bank 729,188 11.6 250,594 4.0 313,243 5.0 Eastern Michigan Bank 61,900 12.0 20,657 4.0 25,821 5.0 December 31, 2025 Total capital (to risk weighted assets) Consolidated $ 859,158 14.4 % $ 477,044 8.0 % $ NA NA% Mercantile Bank 775,664 13.8 449,498 8.0 561,873 10.0 Eastern Michigan Bank 58,893 20.2 23,335 8.0 29,168 10.0 Tier 1 capital (to risk weighted assets) Consolidated 709,058 11.9 357,783 6.0 NA NA Mercantile Bank 717,619 12.8 337,124 6.0 449,498 8.0 Eastern Michigan Bank 56,495 19.4 17,501 6.0 23,335 8.0 Common equity tier 1 (to risk weighted assets) Consolidated 660,117 11.1 268,337 4.5 NA NA Mercantile Bank 717,619 12.8 252,843 4.5 365,217 6.5 Eastern Michigan Bank 56,495 19.4 13,126 4.5 18,960 6.5 Tier 1 capital (to average assets) Consolidated 709,058 11.4 249,580 4.0 NA NA Mercantile Bank 717,619 11.5 248,738 4.0 310,922 5.0 Eastern Michigan Bank 56,495 11.5 19,621 4.0 24,527 5.0 (Continued) 38 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 14. REGULATORY MATTERS (Continued) Our consolidated capital levels as of June 30, 2026 , and December 31, 2025 , include $ 49.3 million and $ 48.9 million of trust preferred securities, respectively. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25 % of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009, were less than $ 15.0 billion. As of June 30, 2026 , and December 31, 2025 , all $ 49.3 million and $ 48.9 million of the trust preferred securities, respectively, were included in our consolidated Tier 1 capital. Under the final BASEL III capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5 % of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement was phased in over three years beginning in 2016. The capital buffer requirement raised the minimum required common equity Tier 1 capital ratio to 7.0 %, the Tier 1 capital ratio to 8.5 % and the total capital ratio to 10.5 % on a fully phased-in basis on January 1, 2019. We believe that, as of June 30, 2026 , our banks meet all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis. Our and our banks' 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 15, 2026 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.39 per share that was paid on March 18, 2026 , to shareholders of record as of March 6, 2026 . On April 16, 2026 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.39 per share that was paid on June 17, 2026 , to shareholders of record as of June 5, 2026 . As of June 30, 2026 , we had the ability to repurchase up to $ 6.8 million in common stock shares from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations as part of a $ 20.0 million common stock repurchase program announced in May 2021. No shares were repurchased during the first six months of 2026 . 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. 15. BUSINESS SEGMENT INFORMATION 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. 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. 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. (Continued) 39 Table of Contents MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 15. BUSINESS SEGMENT INFORMATION (continued) Selected financial information on our business segments is presented as follows as of and for the six months ended June 30, 2026 : (Dollars in thousands) Mercantile Bank Eastern Michigan Bank All Other Intercompany Eliminations Consolidated Total Interest income $ 160,309 $ 12,891 $ 2,122 $ ( 3,200 ) $ 172,122 Interest expense 54,944 1,142 6,017 ( 3,140 ) 58,963 Net interest income 105,365 11,749 ( 3,895 ) ( 60 ) 113,159 Provision for credit losses ( 3,400 ) ( 200 ) - - ( 3,600 ) Net interest income after provision for credit losses 108,765 11,949 ( 3,895 ) ( 60 ) 116,759 Noninterest income 21,886 1,132 39,169 ( 39,000 ) 23,187 Noninterest expense 69,533 8,045 3,905 - 81,483 Income before federal income tax expense 61,118 5,036 31,369 ( 39,060 ) 58,463 Federal income tax expense 10,550 1,033 ( 1,732 ) - 9,851 Net income $ 50,568 $ 4,003 $ 33,101 $ ( 39,060 ) $ 48,612 Goodwill $ 32,171 $ 24,217 $ 17,301 $ - $ 73,689 Core deposit intangible, net - 17,307 - - 17,307 Total assets 6,240,346 553,623 1,046,837 ( 1,021,316 ) 6,819,490 16. SUBSEQUENT EVENTS On July 16, 2026 , our Board of Directors declared a cash dividend on our common stock in the amount of $ 0.40 per share that will be paid on September 16, 2026 , to shareholders of record as of September 4, 2026 . 40 Table of Contents MERCANTILE BANK CORPORATION Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the Company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “indicates,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence (“Future Factors”). Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise. Future Factors include, among others, difficulties and delays in the ongoing integration of Mercantile Bank and Eastern Michigan Bank and achieving anticipated synergies, cost savings and other benefits from the transaction; our ability to obtain timely regulatory approval for the consolidation of Eastern Michigan Bank into Mercantile Bank; our ability to successfully complete and integrate our core processing system conversion, including managing operational disruptions, customer impacts, data conversion issues, and implementation costs; our ability to maintain adequate levels of allowance for credit losses; adverse changes in interest rates and interest rate relationships; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and non-traditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches, and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the Covid-19 pandemic or similar public health threats, and measures implemented to combat them; and other risk factors, including those described in our annual report on Form 10-K for the year ended December 31, 2025. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement. Reconciliation of U.S. GAAP to Non-GAAP Financial Measures This report contains certain non-GAAP financial measures, including adjusted net income, adjusted noninterest expense, and adjusted diluted earnings per share, each of which excludes after-tax costs associated with (i) Mercantile’s acquisition of Eastern Michigan Financial Corporation that was completed during the fourth quarter of 2025 ($0.1 million and $0.4 million during the second quarter and first six months of 2026, respectively) , and (ii) the previously announced core and digital banking system conversion ($0.5 million and $3.5 million during the second quarter and first six months of 2026, respectively). These non-GAAP financial measures are identified in this report where they appear. We believe that presenting these non-GAAP financial measures provides investors, analysts, and other interested parties with meaningful supplementary information to assess Mercantile’s underlying operational performance by removing the effect of costs we consider to be non-recurring in nature and not reflective of Mercantile’s core operating results. These non-GAAP financial measures are used by management to evaluate Mercantile’s ongoing operations, for internal planning and forecasting purposes, and to assess period-over-period comparability. Management believes it is useful for the reader to review these non-GAAP adjusted measures alongside the GAAP measures. Our definition of these adjusted financial measures may differ from similarly named measures used by others. These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for our GAAP measures. Introduction The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Bank, Eastern Michigan Bank (collectively “our banks”), Mercantile Community Partners, LLC ("MCP"), and Mercantile Insurance Center, Inc., a subsidiary of Mercantile Bank, at June 30, 2026, and December 31, 2025, and the results of operations for the three and six months ended June 30, 2026, and 2025. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to “us,” “we,” “our” or “the Company” include Mercantile Bank Corporation and its consolidated subsidiaries referred to above. 41 Table of Contents MERCANTILE BANK CORPORATION Critical Accounting Policies Accounting principles generally accepted in the United States of America (“GAAP”) are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting estimates, see Note 1 of the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2025 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors. Allowance for Credit Losses ( “a llowance ” ) : The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on historical credit loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Credit losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance, while recoveries of loans previously charged-off are added to the allowance. See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance. Mortgage Servicing Rights : Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from servicing each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance. 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. Goodwill : Accounting rules require us to determine the fair value of all the assets and liabilities of an acquired entity, and to record their fair value on the date of acquisition. We employ a variety of means in determining fair value, including the use of discounted cash flow analysis, market comparisons and projected future revenue streams. For those items for which we conclude that we have the appropriate expertise to determine fair value, we may choose to use our own calculation of fair value. In other cases, where the fair value is not readily determined, consultation with outside parties is used to determine fair value. Once valuations have been determined, the net difference between the price paid for the acquired entity and the fair value of the balance sheet is recorded as goodwill. Goodwill is assessed at least annually for impairment, with any such impairment recognized in the period identified. A more frequent assessment is performed if there are material changes in the market place or within the organizational structure. 42 Table of Contents MERCANTILE BANK CORPORATION Financial Overview On December 31, 2025, we consummated the acquisition of Eastern Michigan Financial Corporation (“Eastern Michigan”), and its wholly owned banking subsidiary, Eastern Michigan Bank, headquartered in Crosswell, Michigan. Eastern Michigan Bank will operate alongside Mercantile Bank until the first quarter of 2027 at which time we plan to consolidate Eastern Michigan Bank into Mercantile Bank in conjunction with the completion of the conversion of our core operating system to a new provider. The first six months of 2026 represented the initial period of financial performance that included Eastern Michigan Bank’s operating results. We reported net income of $25.9 million, or $1.50 per diluted share, for the second quarter of 2026, compared with net income of $22.6 million, or $1.39 per diluted share, during the second quarter of 2025. Net income during the first six months of 2026 totaled $48.6 million, or $2.82 per diluted share, compared to $42.2 million, or $2.60 per diluted share, during the first six months of 2025. Growth in net income during both time periods primarily reflected increased net interest income and lower provision expense that more than offset higher noninterest expense costs and federal income tax expense. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan and previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $26.4 million, or $1.53 per diluted share, for the second quarter of 2026, and $51.7 million, or $2.99 per diluted share, for the first six months of 2026. Earnings increased $0.14 per diluted share, or approximately 10%, in the second quarter of 2026 compared to the second quarter of 2025, and $0.39 per diluted share, or approximately 15%, during the first six months of 2026 compared to the first six months of 2025. We believe using these non-GAAP measurements reflects our core earnings performance and provides for more accurate current-period versus prior-period comparisons. Commercial loans increased $132 million during the first six months of 2026, providing for an annualized growth rate of approximately 7%. As had been the case during most of 2025, commercial loan growth during the first six months of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships, totaled $121 million and $180 million during the second and first quarters of 2026, respectively, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter. As a percentage of total commercial loans, commercial and industrial and owner-occupied commercial real estate (“CRE”) loans equaled 57.8% as of June 30, 2026, compared to 55.0% as of December 31, 2025. The commercial loan pipeline remains strong, and as of June 30, 2026, we had $236 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase. Residential mortgage loans decreased $40.3 million during the first six months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $287 million during the first six months of 2026, reflecting an increase of over 18% compared to the first six months of 2025. Approximately 74% of the residential mortgage loans originated during the first six months of 2026 were with the intent to sell, compared to approximately 80% during the first six months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the relatively high percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and sold has had a positive impact on mortgage banking income. The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $5.8 million, or 0.1% of total loans, as of June 30, 2026. Accruing loans past due 30 to 89 days remain very low with no foreclosed properties at quarter-end. Gross loan charge-offs were nominal during the first six months of 2026, while recoveries of prior period loan charge-offs aggregated $0.9 million, providing for a net loan recovery of $0.9 million. Interest-earning deposits, a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago (“FRB Chicago”), averaged $391 million during the first six months of 2026, compared to $230 million during the first six months of 2025. The higher average balance primarily reflects strong deposit growth during the first six months of 2026 and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth. 43 Table of Contents MERCANTILE BANK CORPORATION Total deposits increased $11.9 million during the first six months of 2026, consisting of a $122 million increase in local deposits and $110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and customary customers’ tax and bonus payments and partnership distributions during that time period. Securities sold under agreements to repurchase (“sweep accounts”) decreased $14.8 million and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances declined $20.9 million during the first six months of 2026. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $325 million, or approximately 6% of total funds, as of June 30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025. Net interest income grew $7.8 million and $15.1 million during the second quarter and first six months of 2026, respectively, compared to the prior-year time periods, reflecting the combined impact of $4.7 million and $9.8 million increases in interest income and $3.1 million and $5.3 million decreases in interest expense, during the respective time periods. Our net interest margin during the second quarter of 2026 was eleven basis points higher than during the second quarter of 2025 and was eight basis points higher during the first six months of 2026 compared to the first six months of 2025. Although our yield on earning assets declined during the 2026 time periods compared to the respective 2025 time periods, largely reflecting the aggregate 75 basis point reduction in the federal funds rate during the last four months of 2025, our cost of funds declined more primarily due to the decline in the interest rate environment and the onboarding of Eastern Michigan Bank’s relative low-cost deposit base. Also contributing to higher net interest income was growth in earning assets. Average earning assets during the first six months of 2026 totaled $6.42 billion, compared to $5.72 billion during the first six months of 2025. Eastern Michigan Bank’s net interest income totaled $5.9 million and $11.7 million during the second quarter and first six months of 2026, respectively. We recorded negative provisions for credit losses of $1.8 million and $3.6 million during the second quarter and first six months of 2026, respectively, compared to positive provisions for credit losses of $1.6 million and $3.7 million during the respective time periods in 2025. We eliminated a $2.7 million specific reserve and recorded a $0.2 million recovery associated with the resolution of a nonperforming commercial construction loan during the second quarter of 2026. The recording of net loan recoveries and sustained strength in loan quality metrics positively impacted necessary provision levels and helped to mitigate required provision levels from loan growth. Noninterest income totaled $11.5 million and $23.2 million during the second quarter and first six months of 2026, respectively, compared to $11.5 million and $20.2 million during the respective time periods in 2025. We recorded strong growth in treasury management fees, card income, and payroll service fees, but lower mortgage banking and interest rate swap income. Eastern Michigan Bank’s noninterest income totaled $0.6 million and $1.1 million during the second quarter and first six months of 2026, respectively. We also recorded $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits during the first quarter of 2026. Noninterest expense totaled $39.4 million and $81.5 million during the second quarter and first six months of 2026, respectively, compared to $33.4 million and $64.5 million during the respective time periods in 2025. Excluding one-time costs aggregating related to the core and digital banking system conversions and the acquisition of Eastern Michigan, noninterest expense increased $5.4 million and $13.1 million during the second quarter and first six months of 2026, respectively, compared to the respective time periods in 2025. Eastern Michigan Bank’s noninterest expense totaled $4.0 million and $8.0 million during the second quarter and first six months of 2026, respectively. Increases in noninterest expenses during the two periods largely reflect higher salary and benefit costs and the impact of a larger balance sheet and branch network. Federal income tax expense totaled $5.3 million and $9.9 million during the second quarter and first six months of 2026, respectively, compared to $3.3 million and $7.9 million during the respective time periods in 2025. The increases during the 2026 time periods largely reflect growth in income before federal income tax expense. The effective tax rate was 16.9% in both the second quarter and first six months of 2026, compared to 12.9% and 15.7% during the respective time periods in 2025. The higher effective tax rate in the 2026 time periods primarily reflects lower tax benefits from the acquisition of transferrable energy tax credits due to lower activity levels. 44 Table of Contents MERCANTILE BANK CORPORATION Financial Condition Total assets decreased $15.7 million during the first six months of 2026, totaling $6.82 billion as of June 30, 2026. Total loans increased $93.7 million and securities available for sale grew $23.3 million, while interest-earning deposit balances declined $147 million during the first six months of 2026. Total deposits increased $11.9 million, while sweep accounts declined $14.8 million and FHLBI advances were down $20.9 million during the first six months of 2026. Our loan portfolio has historically been primarily comprised of commercial loans. Commercial loans totaled $4.05 billion, or 82.4% of total loans, as of June 30, 2026. Commercial loans increased $132 million during the first six months of 2026, providing for an annualized growth rate of approximately 7%. As had been the case during most of 2025, commercial loan growth during the first six months of 2026 was negatively impacted by a higher than typical level of payoffs and line of credit paydowns. Commercial loan payoffs, largely reflecting business sales, sales of assets and secondary market refinancings, and line of credit paydowns on larger commercial loan relationships, totaled $121 million and $180 million during the second and first quarters of 2026, respectively, after aggregating $363 million, or an average of $91 million per quarter, in 2025. Our typical level of such payoffs and line paydowns average around $50 million per quarter. As a percentage of total commercial loans, commercial and industrial and owner-occupied CRE loans equaled 57.8% as of June 30, 2026, compared to 55.0% as of December 31, 2025. Commercial and industrial loans increased $163 million, owner-occupied CRE loans were up $25.0 million and land development and construction loans expanded by $2.0 million, while multi-family and residential rental property loans declined $39.0 million and non-owner occupied CRE loans were down $18.8 million during the first six months of 2026. Availability on commercial construction and development loans that are in the construction phase totaled $236 million as of June 30, 2026, 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 $234 million in committed and accepted new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial bankers 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 have established within our commercial loan portfolio. Usage of existing commercial lines of credit averaged approximately 41% during the first six months of 2026, compared to approximately 44% during all of 2025. Residential mortgage loans totaled $751 million, or 15.3% of total loans, as of June 30, 2026. Residential mortgage loans decreased $40.3 million during the first six months of 2026, as aggregate payoffs and scheduled monthly payments exceeded new loans added to the portfolio during the quarter. Residential mortgage loan originations totaled $287 million during the first six months of 2026, reflecting an increase of over 18% compared to the first six months of 2025. Approximately 74% of the residential mortgage loans originated during the first six months of 2026 were with the intent to sell, compared to approximately 80% during the first six months of 2025. Combined with increased prepayment speeds of our residential mortgage loan portfolio during the past two years, the relatively high percentage of loans sold has resulted in a declining portfolio balance. The increased volume of residential mortgage loans originated and sold has had a positive impact on mortgage banking income. Other consumer-related loans totaled $115 million, or 2.3% of total loans, as of June 30, 2026. We expect this loan portfolio segment to remain relatively stable in dollar amount but decline as a percentage of total loans in future periods as the commercial loan segment grows. Home equity lines of credit comprised approximately 79% of other consumer-related loans as of June 30, 2026. 45 Table of Contents MERCANTILE BANK CORPORATION Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions or other factors. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require modification in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on nonperforming loans, as well as on foreclosed and repossessed assets, are reviewed periodically. We also have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust external and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions. The overall quality of our loan portfolio remains strong, with nonperforming loans totaling $5.8 million, or 0.1% of total loans, as of June 30, 2026. The volume of nonperforming loans has remained under 0.3% of total loans 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 no foreclosed properties at quarter-end. Gross loan charge-offs were nominal during the first six months of 2026, while recoveries of prior period loan charge-offs aggregated $0.9 million, providing for a net loan recovery of $0.9 million. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries. The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential mortgage loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position. See Note 1- Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance. See also Note 3 – Loans and Allowance for Credit Losses in this Quarterly Report on Form 10-Q for further information regarding our loan portfolio and allowance. 46 Table of Contents MERCANTILE BANK CORPORATION The allowance equaled $55.4 million, or 1.13% of total loans and 955% of nonperforming loans, as of June 30, 2026. The allowance was comprised of $54.5 million in general reserves relating to performing loans and $0.9 million in specific reserves on other loans, primarily nonperforming loans, as of June 30, 2026. Loans with an aggregate carrying value of $0.6 million as of June 30, 2026, had been subject to previous partial charge-offs aggregating $0.2 million over the past several years. There were no specific reserves allocated to loans that had been subject to a previous partial charge-off as of June 30, 2026. Although we believe the allowance is adequate to absorb loan losses in our loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance. The following table reflects the composition of our allowance for credit losses, nonaccrual loans, and net charge-offs as of and for the six months ended June 30, 2026. (Dollars in thousands) Allowance for Credit Losses Total Loans Allowance for Credit Losses to Total Loans Nonaccrual Loans Nonaccrual Loans to Total Loans Allowance for Credit Losses to Nonaccrual Loans Net Charge-Offs Annualized Net Charge-Offs to Average Loans Commercial: Commercial and industrial $ 13,773 $ 1,537,029 0.90 % $ 942 0.06 % 1,462.10 % $ (365 ) (0.05 )% Vacant land, land development and residential construction 546 119,387 0.46 210 0.18 260.00 (49 ) (0.12 ) Real estate – owner occupied 8,048 803,883 1.00 743 0.09 1,083.18 (14 ) (0.01 ) Real estate – non-owner occupied 12,404 1,091,844 1.14 0 0 NA (228 ) (0.05 ) Real estate – multi-family and residential rental 5,057 498,253 1.01 0 0 NA (8 ) (0.01 ) Total commercial 39,828 4,050,396 0.98 1,895 0.05 2,101.74 (664 ) (0.03 ) Retail: 1-4 family mortgages 12,699 750,526 1.69 3,811 0.51 333.22 (168 ) (0.04 ) Other consumer 2,806 114,631 2.45 97 0.08 2,892.78 (18 ) (0.04 ) Total retail 15,505 865,157 1.79 3,908 0.45 396.75 (186 ) (0.04 ) Unallocated 108 NA NA NA NA NA NA NA Total $ 55,441 $ 4,915,553 1.13 % $ 5,803 0.12 % 955.39 % $ (850 ) (0.04 )% 47 Table of Contents MERCANTILE BANK CORPORATION Securities available for sale increased $23.3 million during the first six months of 2026, totaling $1.13 billion as of June 30, 2026. There were no purchases or maturities of U.S. Treasury securities during the first six months of 2026. Purchases of U.S. Government agency bonds during the first six months of 2026 aggregated $68.1 million, while proceeds from maturities totaled $18.0 million. There were no purchases of U.S. Government agency guaranteed mortgage-backed securities during the first six months of 2026, while proceeds from principal paydowns aggregated $9.3 million. Purchases of municipal bonds totaled $13.2 million during the first six months of 2026, while proceeds from maturities and calls aggregated $17.4 million. As of June 30, 2026, the portfolio was primarily comprised of U.S. Treasury and U.S. Government agency bonds (66%), municipal bonds (24%), U.S. Government agency guaranteed mortgage-backed securities (7%) and other bonds (3%). All of our securities are currently designated as available for sale and are therefore stated at fair value. The fair value of securities designated as available for sale totaled $1.13 billion as of June 30, 2026, including a net unrealized loss of $40.5 million. The net unrealized loss equaled $30.4 million as of December 31, 2025. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect any upcoming purchases to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at the current level of approximately 16% of total assets. Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third-party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines. FHLBI stock totaled $22.1 million as of June 30, 2026, unchanged from December 31, 2025. Our investment in FHLBI stock is necessary to engage in the FHLBI’s advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods. Interest-earning deposits, a vast majority of which are comprised of funds on deposit with the Federal Reserve Bank of Chicago, totaled $267 million as of June 30, 2026. Interest-earning deposits averaged $391 million during the first six months of 2026, compared to $230 million during the first six months of 2025. The higher average balance primarily reflects strong local deposit growth throughout 2025 and into 2026, and our strategy to reduce the loan-to-deposit ratio via local deposit growth exceeding loan and investment growth. Strong commercial loan growth and out-of-area deposit maturities during the second quarter of 2026 were largely funded by monies on deposit with the Federal Reserve Bank of Chicago, resulting in a June 30, 2026, balance that was lower than the average during the first six months of 2026. Net premises and equipment equaled $60.7 million as of June 30, 2026, compared to $62.5 million as of December 31, 2025. Depreciation expense totaled $2.9 million during the first six months of 2026, while investments associated with renovations of existing facilities and equipment purchases aggregated $1.1 million. 48 Table of Contents MERCANTILE BANK CORPORATION Total deposits increased $11.9 million during the first six months of 2026, consisting of a $122 million increase in local deposits and $110 million reduction in out-of-area deposits. The increase in local deposits occurred despite seasonal and customary customers’ tax and bonus payments and partnership distributions during that time period. Noninterest-bearing checking accounts increased $80.9 million, money market accounts were up $41.6 million, and savings deposits grew $11.2 million, while interest-bearing checking accounts decreased $10.6 million and local time deposits declined $0.8 million. The deposit balance increases reflect new deposit account relationships and additional funds from existing deposit customers, largely from business and public units. Uninsured deposits totaled approximately $3.01 billion, or about 57% of total deposits, as of June 30, 2026, compared to approximately $2.91 billion, or about 54% of total deposits, as of December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions we use for regulatory reporting requirements. Our level of uninsured deposits, which has remained relatively steady as a percentage of total deposits, is generally higher than banking industry averages given our commercial lending focus. Sweep accounts decreased $14.8 million during the first six months of 2026, totaling $217 million as of June 30, 2026. 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. The average balance of sweep accounts equaled $223 million during the first six months of 2026, with a high daily balance of $257 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All of our repurchase agreements are accounted for as secured borrowings. FHLBI advances declined $20.9 million during the first six months of 2026, totaling $305 million as of June 30, 2026. Bullet advances aggregating $30.0 million were obtained during the first six months of 2026, while bullet advance maturities aggregated $50.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $847 million, as of June 30, 2026. Shareholders’ equity increased $30.2 million during the first six months of 2026, equaling $755 million as of June 30, 2026. Positively impacting shareholders’ equity during the first six months of 2026 was net income of $48.6 million, which was partially offset by the payment of cash dividends totaling $13.3 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.9 million. An $8.0 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders’ equity during the first six months of 2026. 49 Table of Contents MERCANTILE BANK CORPORATION Liquidity Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured, and called securities, federal funds sold and interest-earning deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximize profitability, while providing adequate liquidity. To assist in providing needed funds and managing interest rate risk, we periodically obtain monies from wholesale funding sources. Wholesale funds, comprised of out-of-area deposits and FHLBI advances, totaled $325 million, or approximately 6% of total funds, as of June 30, 2026, compared to $457 million, or approximately 8% of total funds, as of December 31, 2025. Sweep accounts decreased $14.8 million during the first six months of 2026, totaling $217 million as of June 30, 2026. 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. The average balance of sweep accounts equaled $223 million during the first six months of 2026, with a high daily balance of $257 million and a low daily balance of $211 million. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into overnight interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance. All our repurchase agreements are accounted for as secured borrowings. Information regarding our repurchase agreements as of June 30, 2026, and during the first six months of 2026 is as follows: (Dollars in thousands) Outstanding balance at June 30, 2026 $ 217,470 Weighted average interest rate at June 30, 2026 2.68 % Maximum daily balance six months ended June 30, 2026 $ 257,040 Average daily balance for six months ended June 30, 2026 $ 222,847 Weighted average interest rate for six months ended June 30, 2026 2.68 % FHLBI advances declined $20.9 million during the first six months of 2026, totaling $305 million as of June 30, 2026. Bullet advances aggregating $30.0 million were obtained during the first six months of 2026, while bullet advance maturities aggregated $50.0 million. Payments on amortizing FHLBI advances totaled $0.9 million. Bullet FHLBI advances are generally obtained to provide funds for loan growth and are used to assist in managing interest rate risk, while amortizing FHLBI advances are generally acquired to match-fund specific longer-term fixed rate commercial loans, with the dollar amount and amortization structure of the underlying advances reflective of the associated commercial loans. FHLBI advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit totaled $1.16 billion, with remaining availability based on collateral equaling $847 million, as of June 30, 2026. We also have the ability to borrow up to $50.0 million on a daily basis through a correspondent bank using an unsecured federal funds purchased line of credit. Our average balance was nominal during the first six months of 2026. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $369 million during the first six months of 2026. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $149 million as of June 30, 2026. We did not utilize this line of credit during the first six months of 2026 or at any time during the previous 17 fiscal years, and do not plan to access this line of credit in future periods. 50 Table of Contents MERCANTILE BANK CORPORATION The following table reflects, as of June 30, 2026, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest: One Year One to Three to Over (Dollars in thousands) or Less Three Years Five Years Five Years Total Deposits without a stated maturity $ 4,428,273 $ 0 $ 0 $ 0 $ 4,428,273 Time deposits 814,469 42,323 11,323 0 868,115 Short-term borrowings 217,470 0 0 0 217,470 Federal Home Loan Bank advances 100,938 132,000 52,177 20,207 305,322 Subordinated debentures 0 0 0 51,358 51,358 Subordinated notes 0 0 0 89,829 89,829 Term note 10,000 15,000 0 0 25,000 Other borrowed money 0 0 0 1,576 1,576 Premises and equipment leases 1,160 1,935 401 1,109 4,605 The balance of certificates of deposit exceeding the FDIC insured limit and their maturity profile as of June 30, 2026, and December 31, 2025, were as follows: (Dollars in thousands) June 30, 2026 December 31, 2025 Up to three months $ 152,407 $ 88,138 Three months to six months 112,765 103,213 Six months to twelve months 80,871 108,745 Over twelve months 8,015 74,395 Total certificates of deposit $ 354,058 $ 374,491 In addition to normal loan funding and deposit flow, we must maintain liquidity to meet the demands of certain unfunded loan commitments and standby letters of credit. As of June 30, 2026, we had a total of $2.23 billion in unfunded loan commitments and $34.1 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $2.00 billion were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $234 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels and include such data in our overall liquidity management. We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. We have developed contingency funding plans that provide a framework for meeting liquidity disruptions. Capital Resources Shareholders’ equity increased $30.2 million during the first six months of 2026, equaling $755 million as of June 30, 2026. Positively impacting shareholders’ equity during the first six months of 2026 was net income of $48.6 million, which was partially offset by the payment of cash dividends totaling $13.3 million. Activity relating to the issuance and sale of common stock through various stock-based compensation programs and our dividend reinvestment plan positively impacted shareholders’ equity by $2.9 million. An $8.0 million after-tax decrease in the market value of our available for sale securities portfolio, generally reflecting an increase in market interest rates, negatively impacted shareholders’ equity during the first six months of 2026. 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. Mercantile Bank’s total risk-based capital ratio was 13.5% as of June 30, 2026, compared to 13.8% as of December 31, 2025. Mercantile Bank’s total regulatory capital increased $8.7 million during the first six months of 2026, in large part reflecting net income totaling $50.6 million, which was partially offset by cash dividends paid to us aggregating $39.0 million. As of June 30, 2026, Mercantile Bank’s total regulatory capital equaled $784 million, or $205 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Eastern Michigan Bank’s total risk-based capital ratio was 23.1% as of June 30, 2026, compared to 20.2% as of December 31, 2025. Eastern Michigan Bank’s total regulatory capital increased $5.3 million during the first six months of 2026, in large part reflecting net income totaling $4.0 million and a $2.4 million reduction in the ineligible core deposit intangible balance due to amortization during the first six months of 2026. As of June 30, 2026, Eastern Michigan Bank’s total regulatory capital equaled $64.2 million, or $36.3 million in excess of the 10.0% minimum that is among the requirements to be categorized as “well capitalized.” Our and our banks’ capital ratios as of June 30, 2026, and December 31, 2025, are disclosed in Note 14 of the Notes to Consolidated Financial Statements. 51 Table of Contents MERCANTILE BANK CORPORATION Results of Operations We recorded net income of $25.9 million, or $1.50 per basic and diluted share, for the second quarter of 2026, compared with net income of $22.6 million, or $1.39 per basic and diluted share, for the second quarter of 2025. We recorded net income of $48.6 million, or $2.82 per basic and diluted share, for the first six months of 2026, compared with net income of $42.2 million, or $2.60 per basic and diluted share, for the first six months of 2025. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan Financial Corporation and the previously announced core and digital banking system conversion (a non-GAAP measurement), net income improved to $26.4 million, or $1.53 per diluted share, for the second quarter of 2026, and $51.7 million, or $2.99 per diluted share, for the first six months of 2026. Using these non-GAAP measures, earnings per diluted share increased $0.14, or 10.1%, in the second quarter of 2026, and $0.39, or 15.0%, in the first six months of 2026, compared to the respective 2025 periods. The increases in net income during the 2026 periods compared to the respective 2025 periods primarily reflected growth in net interest income and lower provisions for credit losses, which more than offset increased levels of noninterest expense. Higher levels of noninterest income, mainly reflecting growth in treasury management fees, bank owned life insurance income, and payroll services fees, also contributed to the increases in net income in the 2026 periods. Net interest income increased as earning asset expansion and decreases in the costs of funds outweighed lower yields on earning assets and growth in interest-bearing liabilities. The negative provision expense recorded during the second quarter of 2026 primarily reflected the elimination of a $2.7 million specific allocation associated with the resolution of a nonperforming commercial construction loan, while the negative provision expense recorded during the first six months of 2026 mainly reflected a decline in specific allocations and changes in loan mix. Excluding the previously mentioned one-time core and digital banking system conversion and acquisition costs, the increases in noninterest expense during the 2026 periods primarily reflected higher salary and benefit costs, cost inflation, and increased costs of a larger balance sheet and branch network. Interest income during the second quarter of 2026 was $86.7 million, an increase of $4.7 million, or 5.8%, from the $82.0 million earned during the second quarter of 2025. The increase resulted from growth in average earning assets, which more than offset a lower yield on average earning assets. Average earning assets equaled $6.43 billion during the second quarter of 2026, up $699 million, or 12.2%, from the level of $5.73 billion during the prior-year second quarter; average securities increased $325 million, average loans were up $196 million, and average other interest-earning assets grew $178 million. The yield on average earning assets was 5.42% during the current-year second quarter, a decline from 5.75% during the respective 2025 period. The decreased yield largely stemmed from a lower yield on loans and a change in earning asset mix, which more than offset an improved yield on securities resulting from the reinvestment of relatively low-yielding bonds and portfolio expansion activities, along with the positive impact resulting from the addition of Eastern Michigan Bank’s securities portfolio. The yield on loans was 6.01% during the second quarter of 2026, down from 6.29% during the second quarter of 2025, mainly due to reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) lowering the targeted federal funds rate. The FOMC decreased the targeted federal funds rate by 25 basis points in each of September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 77% of average total commercial loans. Reflecting a strategic initiative to lower the loan-to-deposit ratio and the impact of Eastern Michigan Bank’s liquid balance sheet, relatively higher-yielding loans represented a decreased percentage of earning assets and relatively lower-yielding securities accounted for an increased percentage of earning assets in the second quarter of 2026 compared to the second quarter of 2025. The yield on securities equaled 3.36% during the second quarter of 2026, up from 2.82% during the prior-year second quarter. The yield on other interest-earning assets, primarily consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.91% during the second quarter of 2025 to 4.04% during the respective 2026 period, reflecting the decreased interest rate environment. Interest income during the first six months of 2026 was $172 million, an increase of $9.8 million, or 6.1%, from the $162 million earned during the first six months of 2025. The increase resulted from a higher level of average earning assets, which more than offset a reduced yield on average earning assets. Average earning assets equaled $6.42 billion during the first six months of 2026, up $709 million, or 12.4%, from the level of $5.72 billion during the respective 2025 period; average securities grew $341 million, average loans increased $198 million, and average other interest-earning assets were up $170 million. The yield on average earning assets was 5.42% during the first six months of 2026, a decline from 5.75% during the first six months of 2025. The lower yield primarily resulted from a reduced yield on loans and a change in earning asset mix, which more than offset a higher yield on securities resulting from the reinvestment of relatively low-yielding bonds and portfolio expansion activities, along with the positive impact stemming from the addition of Eastern Michigan Bank’s securities portfolio. The yield on loans was 6.02% during the first six months of 2026, down from 6.29% during the first six months of 2025, mainly due to lower interest rates on variable-rate commercial loans resulting from the FOMC decreasing the targeted federal funds rate. The FOMC reduced the targeted federal funds rate by 25 basis points in each of September, October, and December of 2025, during which time average variable-rate commercial loans represented approximately 77% of average total commercial loans. Exhibiting a strategic plan to lower the loan-to-deposit ratio and the impact of Eastern Michigan Bank’s liquid balance sheet, relatively higher-yielding loans represented a decreased percentage of earning assets and relatively lower-yielding securities accounted for an increased percentage of earning assets in the first six months of 2026 compared to the respective 2025 period. The yield on securities equaled 3.31% during the first six months of 2026, up from 2.78% during the first six months of 2025. The yield on other interest-earning assets, largely consisting of funds on deposit with the Federal Reserve Bank of Chicago, declined from 4.85% during the first six months of 2025 to 4.02% during the first six months of 2026, reflecting the decreased interest rate environment. Interest expense during the second quarter of 2026 was $29.4 million, a decrease of $3.1 million, or 9.4%, from the $32.5 million expensed during the second quarter of 2025. The lower level of interest expense resulted from a decline in the weighted average cost of average interest-bearing liabilities, which more than offset growth in the average balance of these funds. The weighted average cost of average interest-bearing liabilities declined from 3.09% during the second quarter of 2025 to 2.53% during the second quarter of 2026 mainly due to lower rates paid on money market accounts and time deposits, reflecting the decreased interest rate environment. An increase in low-cost deposit products as a percentage of total funding sources, primarily stemming from the addition of Eastern Michigan Bank’s deposit base, and a reduction in brokered deposits also contributed to the reduced cost of funds. The latter reflects a strategy to refine the deposit base whereby the reliance on the brokered deposit market and other higher-priced deposit-only relationships is reduced. Average interest-bearing liabilities totaled $4.66 billion during the second quarter of 2026, compared to $4.21 billion during the prior-year second quarter, representing an increase of $450 million, or 10.7%. 52 Table of Contents MERCANTILE BANK CORPORATION Interest expense during the first six months of 2026 was $59.0 million, a decrease of $5.3 million, or 8.3%, from the $64.3 million expensed during the first six months of 2025. The decreased interest expense reflected a reduction in the weighted average cost of average interest-bearing liabilities, which more than offset growth in the average balance of these funds. The weighted average cost of average interest-bearing liabilities decreased from 3.09% during the first six months of 2025 to 2.54% during the first six months of 2026 mainly due to reduced rates paid on money market accounts and time deposits, reflecting the lower interest rate environment. An increase in low-cost deposit products as a percentage of total funding sources, largely stemming from the onboarding of Eastern Michigan Bank’s deposit base, and a decrease in brokered deposits also contributed to the reduced cost of funds. The latter reflects the previously mentioned strategy to reduce reliance on the brokered deposit market and other higher-priced deposit-only relationships. Average interest-bearing liabilities totaled $4.69 billion during the first six months of 2026, compared to $4.20 billion during the respective 2025 period, representing an increase of $490 million, or 11.7%. Net interest income during the second quarter of 2026 was $57.3 million, an increase of $7.8 million, or 15.7%, from the $49.5 million earned during the respective 2025 period. The increase reflected growth in earning assets and an improved net interest margin. The net interest margin was 3.59% in the current-year second quarter, up from 3.48% in the second quarter of 2025 due to a decline in the cost of funds, which more than offset a decreased yield on average earning assets. The cost of funds equaled 1.83% in the second quarter of 2026, down from 2.27% in the prior-year second quarter primarily due to lower costs of money market accounts and time deposits, reflecting the decreasing interest rate environment, and an increase in low-cost deposits as a percentage of total funding sources. The lower yield on average earning assets mainly resulted from a decreased yield on commercial loans, largely reflecting the impact of the previously mentioned FOMC rate cuts, and a change in earning asset mix resulting from the aforementioned strategic initiative to lower the loan-to-deposit ratio. Net interest income during the first six months of 2026 was $113 million, an increase of $15.1 million, or 15.4%, from the $98.0 million earned during the first six months of 2025. The increase reflected earning asset expansion and a higher net interest margin. The net interest margin was 3.57% in the first six months of 2026, up from 3.48% in the respective 2025 period due to a decreased cost of funds, which more than offset a lower yield on average earning assets. The cost of funds equaled 1.85% in the first six months of 2026, down from 2.27% in the first six months of 2025 primarily due to decreased costs of money market accounts and time deposits, reflecting the lower interest rate environment, and an increase in low-cost deposits as a percentage of total funding sources. The reduced yield on average earning assets mainly stemmed from a decreased yield on commercial loans, primarily reflecting the impact of the previously mentioned FOMC rate cuts, and a change in earning asset mix resulting from the aforementioned strategic plan to lower the loan-to-deposit ratio. The following tables set forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflect the average yield on assets and average cost of liabilities for the second quarters and first six months of 2026 and 2025. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the period presented. Tax-exempt securities interest income and yield for the second quarters and first six months of 2026 and 2025 have been computed on a tax equivalent basis using a marginal tax rate of 21.0%. Securities interest income was increased by $300,000 and $255,000 in the second quarters of 2026 and 2025, respectively, and $600,000 and $510,000 in the first six months of 2026 and 2025, respectively, for this non-GAAP, but industry standard, adjustment. These adjustments equated to increases in our net interest margin of approximately two basis points for each of the 2026 and 2025 periods. 53 Table of Contents MERCANTILE BANK CORPORATION Quarters ended June 30, 2026 2025 Average Average Average Average Balance Interest Rate Balance Interest Rate (dollars in thousands) ASSETS Loans $ 4,891,868 $ 73,293 6.01 % $ 4,695,367 $ 73,614 6.29 % Investment securities 1,128,063 9,474 3.36 803,264 5,669 2.82 Other interest-earning assets 413,729 4,229 4.04 235,965 2,930 4.91 Total interest - earning assets 6,433,660 86,996 5.42 5,734,596 82,213 5.75 Allowance for credit losses (57,835 ) (57,801 ) Other assets 475,240 385,024 Total assets $ 6,851,065 $ 6,061,819 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 3,956,008 $ 23,140 2.35 % $ 3,463,066 $ 25,725 2.98 % Short-term borrowings 223,699 1,488 2.67 242,605 1,919 3.17 Federal Home Loan Bank advances 313,673 2,595 3.27 365,672 2,897 3.13 Other borrowings 169,708 2,215 5.16 141,534 1,938 5.42 Total interest-bearing liabilities 4,663,088 29,438 2.53 4,212,877 32,479 3.09 Noninterest-bearing deposits 1,376,108 1,152,631 Other liabilities 67,676 80,082 Shareholders’ equity 744,193 616,229 Total liabilities and shareholders’ equity $ 6,851,065 $ 6,061,819 Net interest income $ 57,558 $ 49,734 Net interest rate spread 2.89 % 2.66 % Net interest spread on average assets 3.37 % 3.29 % Net interest margin on earning assets 3.59 % 3.48 % 54 MERCANTILE BANK CORPORATION Six months ended June 30, 2026 2025 Average Average Average Average Balance Interest Rate Balance Interest Rate (dollars in thousands) ASSETS Loans $ 4,860,126 $ 145,190 6.02 % $ 4,662,415 $ 145,344 6.29 % Investment securities 1,124,048 18,623 3.31 783,291 10,882 2.78 Other interest-earning assets 440,710 8,909 4.02 269,956 6,581 4.85 Total interest - earning assets 6,424,884 172,722 5.42 5,715,662 162,807 5.75 Allowance for credit losses (58,301 ) (56,735 ) Other assets 477,607 381,182 Total assets $ 6,844,190 $ 6,040,109 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 3,977,456 $ 46,386 2.35 % $ 3,452,840 $ 50,918 2.97 % Short-term borrowings 222,851 2,967 2.68 232,005 3,682 3.20 Federal Home Loan Bank advances 315,990 5,151 3.24 370,912 5,795 3.11 Other borrowings 170,804 4,459 5.19 141,333 3,875 5.45 Total interest-bearing liabilities 4,687,101 58,963 2.54 4,197,090 64,270 3.09 Noninterest-bearing deposits 1,347,481 1,149,359 Other liabilities 70,799 88,412 Shareholders’ equity 738,809 605,248 Total liabilities and shareholders’ equity $ 6,844,190 $ 6,040,109 Net interest income $ 113,759 $ 98,537 Net interest rate spread 2.88 % 2.66 % Net interest spread on average assets 3.35 % 3.29 % Net interest margin on earning assets 3.57 % 3.48 % 55 Table of Contents MERCANTILE BANK CORPORATION We recorded negative provisions for credit losses of $1.8 million and $3.6 million during the second quarter and first six months of 2026, respectively, and positive provisions for credit losses of $1.6 million and $3.7 million during the respective 2025 periods. The negative provision expense recorded during the current-year second quarter mainly reflected the elimination of a $2.7 million specific allocation associated with the resolution of a nonperforming commercial construction loan, which was partially offset by changes in the economic forecast, allocations necessitated by net loan growth, and an increase in qualitative factor allocations. The negative provision expense recorded during the first six months of 2026 primarily reflected a decline in specific allocations and changes in loan mix, which more than offset allocations necessitated by changes in qualitative factors and net loan growth. The positive provision expense recorded during the second quarter of 2025 mainly reflected an individual allocation of $2.5 million associated with a commercial construction loan relationship that was placed on nonaccrual during the quarter and allocations of $0.7 million necessitated by net loan growth, which more than offset an aggregate reduction of $1.0 million in individual allocations related to nonperforming loan relationships resulting from full payoffs and partial paydowns. The positive provision expense recorded during the first six months of 2025 primarily reflected a net increase in individual allocations driven by the aforementioned commercial construction loan that was placed on nonaccrual during the second quarter, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. Noninterest income totaled $11.5 million during the second quarter of 2026, up slightly from the level recorded during the prior-year second quarter. Noninterest income totaled $23.2 million during the first six months of 2026, up $3.0 million, or 15.0%, from $20.2 million during the first six months of 2025. The increases in noninterest income in the 2026 periods mainly reflected growth in treasury management fees, bank owned life insurance income, and payroll services fees. The increases in treasury management and payroll services fees largely resulted from new commercial customer acquisitions and customers’ expanded use of products and services, as well as a modified fee schedule. Reductions in mortgage banking income, primarily stemming from changes in the quarter-end fair values of commitments to originate salable residential mortgage loans, accelerated mortgage servicing rights amortization, and lower percentages of loans originated with the intent to sell, and interest rate swap income, mainly reflecting lower levels of new swap transactions, negatively impacted noninterest income in the 2026 periods. Noninterest income during the first six months of 2026 included $0.4 million in interest from the Internal Revenue Service on federal income tax payments made during 2024 that were subsequently refunded due to offsetting purchased energy tax credits. Eastern Michigan Bank generated $0.6 million and $1.1 million in noninterest income during the second quarter and first six months of 2026, respectively, primarily consisting of deposit service charges and bank owned life insurance income. Noninterest expense totaled $39.4 million during the second quarter of 2026, compared to $33.4 million during the prior-year second quarter. Noninterest expense totaled $81.5 million during the first six months of 2026, compared to $64.5 million during the first six months of 2025. Excluding non-recurring costs aggregating $0.5 million and $3.5 million related to the core and digital banking system conversion and $0.1 million and $0.4 million associated with the acquisition of Eastern Michigan Financial Corporation during the second quarter and first six months of 2026, respectively, noninterest expense increased $5.4 million, or 16.1%, during the current-year second quarter and $13.1 million, or 20.4%, during the first six months of 2026 compared to the respective 2025 periods using these non-GAAP measurements. The increases in noninterest expense mainly resulted from higher salary and benefit costs, largely reflecting annual merit pay increases and market adjustments and increased bonus accruals, residential mortgage lender commissions and incentives, health insurance costs, payroll taxes, stock-based compensation, and retirement costs. The remaining rises in noninterest expense primarily reflected cost inflation and the increased costs of a larger balance sheet and branch network. A $1.4 million decrease in allocations to the reserve for unfunded loan commitments, mainly reflecting a lower level of commercial loan commitments that have been accepted by customers, positively impacted noninterest expense during the second quarter of 2026. Eastern Michigan Bank’s noninterest expense totaled $4.0 million and $8.0 million during the second quarter and first six months of 2026, respectively, including salary and benefit costs of $1.8 million and $3.5 million, core deposit intangible asset amortization of $0.9 million and $1.7 million, and data processing costs of $0.4 million and $0.8 million during the respective periods. During the second quarter of 2026, we recorded income before federal income tax of $31.2 million and federal income tax expense of $5.3 million. During the second quarter of 2025, we recorded income before federal income tax of $26.0 million and federal income tax expense of $3.4 million. During the first six months of 2026, we recorded income before federal income tax of $58.5 million and federal income tax expense of $9.9 million. During the first six months of 2025, we recorded income before federal income tax of $50.0 million and federal income tax expense of $7.8 million. The increases in federal income tax expense during the 2026 periods primarily resulted from higher levels of income before federal income tax. The acquisition of transferable energy tax credits and the net benefits from low-income housing and historic tax credit investments provided for aggregate tax benefits of $0.8 million and $1.8 million during the second quarters of 2026 and 2025, respectively, and $1.6 million and $2.0 million during the first six months of 2026 and 2025, respectively. The recording of the tax benefits positively impacted our effective tax rate, which equaled 16.9% and 12.9% during the second quarters of 2026 and 2025, respectively, and 16.8% and 15.7% during the first six months of 2026 and 2025, respectively. 56 Table of Contents MERCANTILE BANK CORPORATION