MERCANTILE BANK CORP

1.** SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for thesix months ended* June 30, 2025* include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Community Partners, LLC ("MCP") and Mercantile Bank (“our bank”) and its subsidiaries, including Mercantile Insurance Center, Inc. These consolidated financial statements have been prepared in accordance with the instructions for Form10-Q and Item303(b) of Regulation S-K and donot 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 statementsnot misleading and for a fair presentation of the results of operations for such periods. The results for the period ended* June 30, 2025* shouldnot 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 Form10-K for the year ended* December 31, 2024*.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts arenot consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

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

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

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

Debt Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities available for sale consist of bonds which might be sold prior to maturity due to a number of factors, including changes in interest rates, prepayment risks, yield, availability of alternative investments or liquidity needs. Debt securities classified as available for sale are reported at their fair value. For available for sale debt securities in an unrealized loss position, wefirst assess whether we intend to sell, or if it is more likely thannot 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 donot 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 hasnot been recorded through an allowance is recognized in other comprehensive income (loss).

Changes in the allowance are recorded as provisions for (or reversals of) credit losses. Losses are charged against the allowance when the collectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At* June 30, 2025*, and* December 31, 2024*, there wasno allowance related to the available for sale debt securities portfolio.

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

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

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

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged offno 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 butnot received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price, which includes a gain or loss on the interest rate commitment coverage position, and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. Market rate risk on interest rate commitments with borrowers prior to loan closing is mitigated through forward commitments referred to as to-be-announced mortgage-backed securities. These mortgage banking activities arenot designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives, which is generally nominal in dollar amount, is included in the gain on sale of loans and recorded as part of mortgage banking income.

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Allowance for Credit Losses (“allowance”): The allowance is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance is increased by a provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged-off against the allowance when we believe the uncollectability of a loan balance is confirmed. The allowance is measured on a collective pool basis when similar risk characteristics exist and on an individual basis when a loan exhibits unique risk characteristic which differentiate the loan from other loans within the loan segments. Loan segments are further discussed in Note3 - 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 arenot required to develop and use our own economic forecast model, and we elect to utilize economic forecasts fromthird-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.

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

Our qualitative factors include:

o Changes in lending policies and procedures

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

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

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

o Changes in the quality of the loan review program

o Changes in the value of underlying collateral dependent loans

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

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

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

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

We recorded a provision for credit losses of $3.7 million and $4.8 million during thesix months ended* June 30, 2025and2024*, respectively. The provision expense recorded during thefirst six months of2025 primarily reflected a net increase in individual allocations, allocations necessitated by net loan growth, and the net impact of changes to the economic forecast. The provision expense recorded during thefirst six months of2024 primarily reflected a net increase in individual allocations and allocations required by net loan growth.

Accrued interest receivable on loans totaling $17.2 million and $17.3 million as of* June 30, 2025* and* December 31, 2024*, respectively, is included inother assets on the Consolidated Balance Sheets. We electednot 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 become90 days past due, or earlier if we believe the collection of interest is doubtful. We believe this policy results in the timely reversal of uncollectable interest. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. In some cases, we* may*determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within the loan segments. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific reserve allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed and collateral deficiencies, among other things.

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

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

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1. SIGNIFICANT ACCOUNTING POLICIES** **(Continued)

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

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

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. We donot 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 doesnot apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense. We hadno derivative instruments designated as hedges as of* June 30, 2025*, and* December 31, 2024*.

Goodwill: The acquisition method of accounting requires that assets and liabilities acquired in a business combination be recorded at fair value as of the acquisition date. The valuation of assets and liabilities often involves estimates based onthird-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 1or more often if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit is below its carrying value. Based on our annual impairment analysis of goodwill as of October 1,it was determined that the fair value was in excess of its respective carrying value as of October 1, 2024;*therefore, goodwill is considerednot impaired.

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Revenue from Contracts with Customers: We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic606, “Revenue from Contracts with Customers” (“Topic606”). Under Topic606, 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 hasnot 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 arenot within the scope of Topic606. 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 wasnot 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 Topic606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

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1. ** **SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following table depicts our sources of noninterest income presented in the Consolidated Statements of Income that are scoped within Topic606:

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

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

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

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

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

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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:

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

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2. SECURITIES (Continued)

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

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 thannot that we will be required to sell the security before recovery and if we donot expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we* may*consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At* June 30, 2025*,747 debt securities with estimated fair values totaling $604 million had unrealized losses aggregating $48.2 million. At* December 31, 2024*,843 debt securities with estimated fair values totaling $680 million had unrealized losses aggregating $63.8 million. At* June 30, 2025*, unrealized losses aggregating $38.8 million were attributable to bonds issued or guaranteed by agencies of the U.S. Federal Government, while unrealized losses totaling $9.4 million were associated with bonds issued by state-based municipalities. For available for sale debt securities in an unrealized loss position, wefirst assess whether we intend to sell, or if it is more likely thannot 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 donot meet the aforementioned criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by a rating agency and adverse conditions specifically related to the issuer of the security, among other factors.

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2. SECURITIES (Continued)

The amortized cost and fair value of debt securities at* June 30, 2025*, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities* maydiffer from contractual maturities because borrowers mayhave the right to call or prepay obligations with or without call or prepayment penalties. Securitiesnot* due at a single maturity date, primarily mortgage-backed securities, are shown separately.

No securities were sold during thefirst**six months of2025 or the full-year2024.

Securities issued by the State of Michigan and all its political subdivisions had combined amortized costs of $223 million and $219 million as of* June 30, 2025*, and* December 31, 2024*, respectively, with estimated market values of $214 million and $209 million at the respective dates. We hadno securities issued by all other states and their political subdivisions as of* June 30, 2025*, and* December 31, 2024*. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, didnot exceed10% of shareholders’ equity.

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

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3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Commercial loans are divided amongfive 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 intoone oftwo groups based on risk characteristics and source of repayment. Our allowance for credit loss pools are consistent with those used for loan note disclosure purposes.

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

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Our total loans at* June 30, 2025* were $4.70 billion compared to $4.60 billion at* December 31, 2024*, an increase of $97.2 million, or 2.1%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at* June 30, 2025* and* December 31, 2024*, and the percentage change in loans from the end of2024 to the end of thesecond quarter of2025, are as follows:

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

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

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

Nonaccrual loans represent the entire balance of collateral dependent loans. As of* June 30, 2025* and* December 31, 2024*, all collateral dependent loans were secured by real estate, with the exception of those classified as commercial and industrial, which were secured by accounts receivable, inventory, and equipment. Interest income recognized on nonaccrual loans totaled $0.3 million and $0.4 million during thesix months ended* June 30, 2025and2024*, respectively, reflecting the collection of interest at the time of principal pay-off.

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

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Credit Quality Indicators.We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on aten 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:

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.

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3**.** LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)

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

There were lines of credit with principal balances of $0.6 million that were converted to term loans during thefirst**six months of2025.

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

There were lines of credit with principal balances of $9.1 million as of* December 31, 2023* that were converted to term loans during2024.

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We use a migration to loss methodology to determine historical loss rates for commercial loans given the comprehensive loan grading process employed by our bank for overtwo 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, 2011through the current reporting date was reasonable and appropriate, which was used in the calculation of both the June 30, 2025*, and* December 31, 2024* allowance for credit losses.

Our historical loss rate is then applied to future loan balances at the instrument level based on remaining contractual life adjusted for amortization, prepayment and default to develop a baseline lifetime loss. Our prepayment speed assumptions are developed at the loan segment level based upon the consideration of all relevant data which we believe could impact anticipated customer behavior, including changes in interest rates, economic conditions, and underlying property valuations. For the commercial portfolio segments, we assumed a 2.0% prepayment speed as of both* June 30, 2025* and* December 31, 2024* as we deemed there to beno considerable changes from historical experience. For the retail1-4 family mortgage and retail other consumer portfolios, we used a prepayment speed of 7.8% as of* June 30, 2025* and* December 31, 2024*.

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

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

Activity in the allowance for credit losses during thethree andsix months ended* June 30, 2025* is as follows:

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Activity in the allowance for credit losses during thethree andsix months ended* June 30, 2024* is as follows:

There wereno loan modifications to borrowers experiencing financial difficulty during thethree months ended* March 31, 2025.The following table presents the period-end amortized cost basis of modifications to borrowers experiencing financial difficulty by type of modification made during thethree* months ended* June 30, 2025*:

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**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 thethree months ended* June 30, 2024*:

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

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

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

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4. PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

Depreciation expense totaled $1.3 million and $1.5 million during thesecond quarters of2025 and2024, respectively.

We enter into facility leases in the normal course of business. As of* June 30, 2025*, we were under lease contracts foreleven of our banking facilities. The leases have maturity dates ranging from* November, 2025through May, 2048,with a weighted average life of 9.3 years as of June 30, 2025*. All of our leases have multiple three- tofive-year extensions; however, these werenot factored in the lease maturities and weighted average lease term as it wasnot reasonably certain we would exercise the options on the dates we entered into the lease agreements.

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

The right-of-use assets, included inpremises and equipment, net on our Consolidated Balance Sheets, and the lease liabilities, included inother liabilities on our Consolidated Balance Sheets, totaled $4.2 million and $4.4 million as of* June 30, 2025*, and* December 31, 2024*, respectively. As permitted by applicable accounting standards, we have electednot to recognize short-term leases with original terms oftwelve months or less on our Consolidated Balance Sheets. Total operating lease expense associated with the leases aggregated $0.3 million during thesecond quarter of2025 and $0.4 million during thesecond quarter of2024.

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4. **PREMISES AND EQUIPMENT, NET ** (Continued)

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

5. DEPOSITS

Our total deposits at* June 30, 2025* were $4.71 billion, an increase of $12.1 million, or 0.3%, from* December 31, 2024*. The components of our outstanding balances at* June 30, 2025* and* December 31, 2024*, and percentage change in deposits from the end of2024 to the end of thesecond quarter of2025, are as follows:

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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:

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

7. FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

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

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

FHLBI amortizing advances totaled $26.2 million as of* June 30, 2025*, with an average rate of 2.52% and with final maturities in2042. FHLBI amortizing advances totaled $27.1 million as of* December 31, 2024*, with an average rate of 2.52% and with final maturities in2042. 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.

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

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

Each advance is payable at its maturity date, and is subject to a prepayment fee if paid prior to the maturity date. The advances are collateralized by residential mortgage loans,first mortgage liens on multi-family residential property loans,first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank under a blanket lien arrangement. Our borrowing line of credit as of* June 30, 2025* totaled $1.06 billion, with remaining availability based on collateral of $698 million.

8. STOCK-BASED COMPENSATION

Stock-based compensation plans are used to provide directors and employees with an increased incentive to contribute to our long-term performance and growth, to align the interests of directors and employees with the interests of our shareholders through the opportunity for increased stock ownership and to attract and retain directors and employees. Stock-based compensation expense, reported as noninterest expense in the Consolidated Statements of Income, totaled $1.7 million and $1.6 million during thesix months ended* June 30, 2025and2024*, respectively.

The Stock Incentive Plan of2020 was approved by shareholders in* May, 2020,and was effectively replaced with the Stock Incentive Plan of2023* that was approved by shareholders in* May, 2023.Under the Stock Incentive Plan of2023,* incentive awards* mayinclude, but arenot* limited to, stock options, restricted stock, stock appreciation rights and stock awards. Price, vesting and expiration date parameters are determined by Mercantile’s Compensation Committee on a grant-by-grant basis.No payments are required from employees for restricted stock awards. The restricted stock awards granted through the plan fully vest after three years and, in the case of performance-based restricted stock issued to executive officers issued under the plan, are subject to the attainment of pre-determined performance goals. There wereno restricted stock grants during thesix months ended* June 30, 2024*.

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

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8. STOCK-BASED COMPENSATION** **(Continued)

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

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

In* March 2025,the Company adopted the2025* 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 Section16* of the Securities and Exchange Act of1934, as amended. Eligible employees can purchase shares on each quarterly purchase date through payroll deductions ofnot 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 spansthree months, with thefirst offering period beginning on* July 1, 2025.As of June 30, 2025,*200,000 shares were reserved for future issuance under the ESPP.

9. COMMITMENTS AND OFF-BALANCE SHEET RISK** **

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan commitments to extend credit are agreements to lend to a customer as long as there isno violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to athird party. Commitments generally have fixed expiration dates or other termination clauses and* mayrequire payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts donot* necessarily represent future cash requirements.

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

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

For commercial lines of credit, retail lines of credit and credit card average outstanding balances, we determined allowance requirements by calculating the difference between the average percent outstanding of the funded commitments over the past several years to actual percent outstanding at the end of the period and applying the respective expected loss allocation factors to the difference as this difference represents the average of unfunded commitments we expect to eventually be drawn upon. For commitments to make loans, we determine an allowance by applying the expected loss allocation factor to the amount expected to be funded. The calculated allowance aggregated $0.9 million and $1.0 million as of* June 30, 2025* and* December 31, 2024*, respectively. We donot reserve for residential mortgage construction loans, as the loans are forone 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.

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

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

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

**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.

Derivativesnot designated as hedges arenot 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 donot meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent banks are recognized directly to earnings. Fees paid to us by the correspondent banks are recognized as noninterest income on our Consolidated Statements of Income on the settlement date.

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

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10. ** **DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The effect of interest rate swaps that arenot designated as hedging instruments resulted in expense of $0.2 million during thesix months ended* June 30, 2025* that was recorded in other noninterest expense on our Consolidated Statements of Income. We have master netting arrangements with our correspondent banks that allow us to net receivables and payables. The netting agreement also allows us to net related cash collateral received and transferred up to the fair value exposure amount. We have elected tonot offset these transactions on the Consolidated Balance Sheets. The netting of derivative instruments as of* June 30, 2025* is presented in the following table.

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

The effect of interest rate swaps that arenot designated as hedging instruments resulted in income of $0.1 million during thesix months ended* June 30, 2024* that was recorded in other noninterest expense on our Consolidated Statements of Income. The netting of derivative instruments as of* December 31, 2024* is presented in the following table.

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11. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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 ifno 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 ASU2016-01, 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.

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12. FAIR VALUES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The price of the principal (or most advantageous) market used to measure the fair value of the asset or liability isnot 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 isnot a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

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

Level1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level2: Significant other observable inputs other than Level1 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 arenot active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level3: 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 arenot available, fair values are measured using independent pricing models. Level2 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. Level3 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 wasno such impairment as of* June 30, 2025*, or* December 31, 2024*. We haveno Level1 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.

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

Loans. We donot record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of significant borrower distress and on an ongoing basis until recovery or charge-off. The fair values of distressed loans are determined using either the sales comparison approach or income approach; respective unobservable inputs for the approaches consist of adjustments for differences between comparable sales and the utilization of appropriate capitalization rates.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

There wereno sales, purchases or transfers in or out of Level3 during thesix months ended* June 30, 2025*. The insignificant reduction in Level3 municipal general obligation bonds during thesix months ended* June 30, 2025* reflects the scheduled maturities of such bonds.

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

There wereno sales, purchases or transfers in or out of Level3 during2024.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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* mayalso adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may*discount certain appraised and internal value estimates to address current distressed market conditions. We generally assign a discount factor range of 25% to 60% for commercial real estate dependent loans and foreclosed assets, and a discount factor range of 25% to 50% for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

13. REGULATORY MATTERS

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

The prompt corrective action regulations providefive classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms arenot used to represent overall financial condition. If an institution isnot well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions,no institution* maymake 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 maybe imposed on the institution at the discretion of the federal regulator. As of June 30, 2025* and* December 31, 2024*, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There areno conditions or events since* June 30, 2025*, that we believe have changed our bank’s categorization.

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13. REGULATORY MATTERS (Continued)

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

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13. REGULATORY MATTERS (Continued)

Our consolidated capital levels as of both* June 30, 2025* and* December 31, 2024* include $48.3 million of trust preferred securities. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that* maybe included in our Tier1* capital mustnot 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 Tier1 capital in accordance with the guidelines isnot 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, 2009were less than $15.0 billion. As of both June 30, 2025* and* December 31, 2024*, all $48.3 million of the trust preferred securities were included in our consolidated Tier1 capital.

Under the final BASEL III capital rules that became effective on* January 1, 2015,there is a requirement for a common equity Tier1* 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 donot 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 overthree years beginning in2016. The capital buffer requirement raised the minimum required common equity Tier1 capital ratio to 7.0%, the Tier1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on* January 1, 2019.We believe that, as of June 30, 2025*, our bank meets all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On* January 16, 2025,our Board of Directors declared a cash dividend on our common stock in the amount of $0.37 per share that was paid on March 19, 2025,to shareholders of record as of March 7, 2025.On April 17, 2025,our Board of Directors declared a cash dividend on our common stock in the amount of $0.37 per share that was paid on June 18, 2025,to shareholders of record as of June 6, 2025.*

As of* June 30, 2025*, we had the ability to repurchase up to $6.8 million in common stock shares from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations as part of a $20.0 million common stock repurchase program announced in* May 2021.No shares were repurchased during thefirst**six* months of2025. Historically, stock repurchases have been funded from cash dividends paid to us from our bank. Additional repurchases* may*be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank. The actual timing, number and value of shares repurchased will be determined by us in our discretion and will depend on a number of factors, including the stock price, capital position, financial performance, general market and economic conditions, alternative uses of capital and applicable legal requirements.

14. SUBSEQUENT EVENTS

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

On* July 22, 2025,we entered into a definitive merger agreement ("Merger Agreement") with Eastern Michigan Financial Corporation (“EFIN”), pursuant to which EFIN will merge with and into an acquisition subsidiary of Mercantile, with the acquisition subsidiary as the surviving corporation (the “Merger”). Following the Merger, Mercantile will operate for a period of time as atwo*-bank holding company. The newly acquired Eastern Michigan Bank will operate alongside Mercantile’s existing bank, Mercantile Bank, until thefirst quarter of2027 at which time Mercantile plans to consolidate Eastern Michigan Bank into Mercantile Bank.

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

The Merger Agreement has been approved by the boards of directors of each of Mercantile and EFIN. The parties anticipate that the Merger will close in thefourth quarter of2025, subject to receiving approval of the Merger Agreement by EFIN’s shareholders and applicable regulatory agencies, and the fulfillment of other customary closing conditions.