Michael H. Price – Chairman of the Board, President & Chief Executive Officer Robert B. Kaminski, Jr. – Chief Operating Officer, Executive Vice President & Secretary Charles E. Christmas – Chief Financial Officer, Senior Vice President & Treasurer

Dennis Klaeser – Raymond James Financial, Inc. Terry McEvoy – Oppenheimer & Co., Inc. Eileen Rooney – Keefe, Bruyette & Woods Stephen Geyen – Stifel Nicolaus & Company, Inc. Welcome to the Mercantile Bank Corporation fourth quarter earnings conference call. There will be a question and answer period at the end of the presentation. (Operator Instructions) Before we begin today’s call I would like to remind everyone that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company or its management, statements on economic performance and statements regarding the underlying assumptions of the company’s business. The company’s actual results could differ materially from any forward-looking statements made today due to the important factors described in the company’s latest Securities & Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by Mercantile today, you can access it at the company’s website www.mercbank.com. On the conference today from Mercantile Bank Corporation we have Mike Price, Chairman, President and Chief Executive Officer; Bob Kaminski, Executive Vice President and Chief Operating Officer; and Chuck Christmas, Senior Vice President and Chief Financial Officer. We will begin the call with management’s prepared remarks and then open up the call to questions. At this point I would like to turn the call over to Mr. Price. Michael H. Price: Thank you, Angel. Good morning, everyone, and welcome. The fourth quarter was again dominated by the severe economic conditions that persist. Because of our conservative recognition of potential problem loans, we again felt it prudent to aggressively enhance our loan loss provision creating a net loss for the quarter. This quarter included an additional provision required by our analysis of the loss factors for each loan grade in our portfolio. Bob Kaminski will detail the dynamic of our loan portfolio and the provision for loan loss during his comments. In addition, we established a valuation allowance on our tax deferred assets which Chuck Christmas will cover in his remarks. The large loan loss provision again was the dominant story for the quarter; however, Mercantile continued to make important progress in many areas during the quarter. Net interest margin grew again and continues to trend upward. The brand’s consolidation project completed during the second quarter has lowered our monthly overhead costs and significant reductions were again made in our level of commercial real estate loans and brokered deposits. Most importantly, during this very difficult economic crisis, we continue the necessary actions to strengthen our capital ratios. Chuck and Bob will detail these actions in their comments. While these improvements were not robust enough to counteract the increased loan loss expense, they should help us continue to improve results in the upcoming quarters. At this time I will turn it over to Chuck. Charles E. Christmas: Thanks, Mike, and good morning everybody. As you saw, this morning we announced that we recorded a net loss of $26.4 million during the fourth quarter of 2009 and a net loss of $42.9 million for all of 2009. These results include a $19.7 million onetime charge to federal income tax expense to establish evaluation allowance on our deferred tax assets. Excluding this charge, our fourth quarter and all of 2009 net loss was $6.7 million and $23.2 million respectively. As you know, the computation of our deferred tax assets and the associated valuation allowance is complex and governed by accounting rules and SEC guidance. Like most banks, we have a net deferred tax asset primarily due to our provision expense exceeding our actual net loan charge offs. At yearend 2009, our net deferred tax assets totaled $19.7 million up from about $10 million at yearend 2008. For us to utilize this asset, we must have future profits that exceed our recent losses. In accordance with the accounting rules and SEC guidance, we are not allowed to carry our deferred tax assets until we can demonstrate sufficient future profits within a certain timeframe, thereby resulting in the creation of a valuation allowance against the deferred tax asset via an increase to federal income tax expense. The deferred tax asset still exists and we expect to reduce and ultimately eliminate the deferred tax valuation allowance in future periods when we return to profitability. Our financial performance during 2009 like that of 2008 was impacted by a significant provision expense as we needed to increase our loan loss reserve in light of additional deterioration in the quality of our loan portfolio and to cover net loan losses. Unfortunately, continued state, regional and national economic struggles had negatively impacted some of our borrowers’ cash flows and underlying collateral values leading to increased non-performing assets, higher loan charge offs and increased overall risk within our loan portfolio. From the time we sensed economic weakness over two years ago, we have been working with our borrowers to develop constructive dialog, which has strengthened our relationships and enhanced our ability to resolve complex issues. With the environment for the banking industry likely to remain stressed until economic conditions improve, credit quality will continue to be our major concern. We will remain relentlessly vigilant in the identification and administration of problem assets. Unfortunately, provision expense as well as non-performing asset administration costs will likely remain higher than historical levels dampening future earnings performance. While we saw some very positive trends in 2009 as well and I would like to touch on some of them with you this morning. Despite a reduction in our total earning assets, an improved net interest margin has provided for increased net interest income. Net interest income during 2009 was $5.1 million or 11% higher than in 2008. The improvement is primarily due to a significant decline in our cost of funds and we expect a continued reduction in our cost of funds into 2010. During the first six months of 2010, we have about $345 million in wholesale funds maturing at an average rate of 2.2% and another $215 million maturing in the last six months of 2010 at an average rate of 2.25%. During the fourth quarter, our average rate on new wholesale funds was about 1.15%. Also contributing to our improved net interest margin has been a very stable yield on assets. The loan pricing initiatives we have undertaken within the commercial loan function have completely mitigated the negative impact of the increase in non-accrual loans. We believe that continued reduction of our cost of funds combined with the benefit of our strategic and pricing initiatives on our asset yields should provide for further notable improvements in our net interest margin during the next few quarters despite the difficulty of predicting the impact of asset quality. Mortgage banking activities income totaled $1.2 million in 2009 compared to about $660,000 in 2008, a strong increase of 81%. Overhead cost reduction strategies are becoming realized. Excluding non-performing asset administration costs, the FDIC insurance premiums and branch consolidation costs, our overhead costs declined by almost $4 million in 2009 compared to 2008. In comparing fourth quarter of 2009 with the fourth quarter of 2008, we are on pace to save about $5.5 million annually. Non-performing asset administration costs totaled $7.3 million in 2009 compared to $3.3 million in 2008. During 2009, valuation write downs on foreclosed properties totaled about $3.6 million or roughly 50% of the total. Property tax payments totaled $1.3 million and legal expenses totaled $1.6 million. We remain a well capitalized banking organization and our regulatory capital ratios have increased despite our net loss. As of yearend 2009, our bank's totaled risk based capital ratio was 11.6% and in dollars was almost $28 million higher than the 10% minimum required to be categorized as well capitalized. At yearend 2008, our bank's total risk based capital ratio was 10.8% and the surplus was about $17 million. Local deposits and sweep accounts were up $215 million during 2009 and combined with a $317 million reduction in our loan portfolio we were able to reduce our level of wholesale funds by over $470 million. As a percent of total funds, wholesale funds have declined from 71% at the beginning of the year down to under 55% at the end of the year. Our loan loss reserve totals $37.9 million at yearend 2009, an increase of $10.8 million during the year. As a percentage of total loans, the loan loss reserve was about 2.5% at yearend 2009 compared to 1.5% at yearend 2008. Although the increase was accomplished through a high provision expense, the higher loan loss reserve level provides additional cushion for potential loan losses. Those are my prepared remarks , I will now turn it over to Bob. Robert B. Kaminski, Jr.: Thank you, Chuck. I will use my portion of the call to review some of the data from the fourth quarter and also for 2009. While the bottom line numbers indicate another challenging quarter for the company, there are some positive things that should be noted. Non-performing assets were up only slightly for the quarter over September, they are up by less than $1 million. Payouts and proceeds from liquidation of non-performing assets totaled $12 million. For all of 2009, payments and proceeds totaled $26 million. We are pleased to report success in a key strategic initiative in 2009 which was the reduction in the commercial real estate portfolio. During 2009, we were able to reduce CRE commitments and outstandings by 14.8%. That was a major contributor to the overall bank portfolio reduction of $317 million. While overall lending activity is down because of poor economic conditions and the overall composition of the portfolio has remained relatively consistent, Mercantile will continue to effect a strategic shift in the portfolio from real estate and other high risk segments towards non-automotive C&I lending. We are also pleased to report that for the first time in many quarters, we witnessed a significant drop in the 30 to 89 day past due category. At December 31st those delinquencies totaled $982,000. While one quarter does not necessarily make a trend, it is good to see this problem loan indicator at a lower level. During the quarter, we continued to bolster our allowance for loan and lease losses. Through continued updating of our loan migration analysis plus analysis of various economic indicators, we felt it prudent to increase the non-specific allocations to remain directionally consistent with the information we were seeing. Of the $15.3 million in provision expense during the fourth quarter, $2.2 million was set aside for the impact for those adjustments to those rating, factor rating categories, $3.7 million was for various credit downgrades, $5.4 million was for specific allocation of impaired credits, and $4 million supported charge offs. Looking at the provision expense by loan purpose, $2.2 million was for land development, $1.7 million was for construction, $800,000 was for one to four family and rental, $1.1 million was for multifamily, $3.4 million for commercial real estate, $3.9 for commercial and industrial loans and $2.2 million for factory allocation changes. The press release contains all the asset quality information we typically provide in this segment of the call but we would be happy to answer any of your questions in the Q&A. That’s my prepared remarks and I’ll turn it back over to Mike. Michael H. Price: Thanks, Bob, and thanks, Chuck. At this time, we would like to open the call for questions.

(Operator Instructions) Your first question comes from Dennis Klaeser – Raymond James Financial, Inc. Dennis Klaeser – Raymond James Financial, Inc.: Just maybe a little bit more discussion on the deferred tax asset. I was a bit surprised to see the size of the asset at yearend since if I remember correctly, your regulatory call report indicated the asset was $10.4 million as of the end of the third quarter. Is there some reason why the asset grew to the degree that it did during the fourth quarter? Charles E. Christmas: Certainly our net deferred tax asset is primarily driven by the provision expense in relation to net loan charge offs so that would have been $49 million in provision expense compared to the net charge offs was the primary driver in that increase. Dennis Klaeser – Raymond James Financial, Inc.: Then I presume that asset will grow , to the extent that continues to happen, that asset will continue to grow a bit and then hopefully when you turn the corner and show sustained profitability that asset would come back on the balance sheet? Charles E. Christmas: That is correct. Obviously, what we are looking to now is for the future, so hopefully turn to profitability quickly. Part of that deferred tax asset is a net operating loss carry forward which we can match off future pre-tax income kind of dollar for dollar and then obviously look to the future actual income as well as some projections for the rest of that valuation allowance. So, you are correct. Dennis Klaeser – Raymond James Financial, Inc.: In terms of your NPAs, it is nice to see the growth is fairly modest in total NPAs and nice to see that the early stage delinquencies are down to only $1 million. How about in terms of your watch list or your special mentions in substandard credits, what have been the recent trends in those categories? Robert B. Kaminski, Jr.: I think as you suggest, we look at those numbers very closely in terms of the pre-indicators of non-performing and I think overall watch and credit downgrades, while that is a very dynamic group of numbers, I think we have noticed that over the fourth quarter, the speed or the pace of which credits have been downgraded into those lower rated buckets have flowed a bit and I think we are pleased to see that. I think that low number of 30 to 89 days past due is hopefully a good indicator of what might be down the road but obviously as I mentioned in my comments, it does not make a trend and we continue to watch those numbers very closely. I think as we have in the past, we have been very aggressive in our downgrades, and if a credit exhibits any signs of weakness we are very quick to reduce that credit and loan rating and take what we think is a fairly conservative approach. So I think that will hold us in good stead for the composition of our reserve and the fact that we take a fairly proactive stance and recognition of the problems when they occur. Dennis Klaeser – Raymond James Financial, Inc.: Then just finally, in terms of your capital ratios, you have a pretty strong Tier-1 leverage ratio , your total risk based ratio is below 12%, I think ideally should probably be above 12%. How do you think about your capital ratios and what would be your target level for those key regulatory ratios? Charles E. Christmas: Certainly we kind of ourselves internally kind of look to a 12% threshold as well. Certainly we saw some increases during 2009, part of that was certainly the TARP proceeds of $21 million of which we gave $19 million to the bank as a capital injection, so that helped us weather the storm from an operating performance standpoint. Our expectations in 2010 on a global basis is a likely continued reduction of total loans and therefore our total assets and our total risk weighted assets. Obviously, we wanted to have much stronger operating performance but you saw we were able to kind of weather a pretty disappointing operating performance and still see our capital ratios hang in there pretty good notwithstanding the TARP proceeds. So I guess on a global basis, we would expect our capital ratios to improve throughout 2010 taking into account the expected reduction in total loans and risk weighted assets.

Your next question comes from Terry McEvoy – Oppenheimer & Co., Terry McEvoy – Oppenheimer & Co., Inc.: In the press release, you talk about the increase in pay downs proceeds from the liquidation of NPAs and you are seeing more activity in that market. Could you just talk about some consistency or any trends that you see in the deals that are getting done, who’s funding those transactions and maybe talk to some of the writedowns specifically to Mercantile in terms of where you are holding the assets and where the deals are getting done? Robert B. Kaminski, Jr.: I think the reductions have come from many different sources. In some cases have come from the liquidation of a loan from the guarantors who have dipped into their own personal resources to liquidate stock portfolios or whatever to be able to pay a loan off. I think in some cases you have seen some credits that have been able to move to other financial institutions, that has happened from time-to-time. You have seen in some cases where the assets have sold by the borrower ahead of any bank liquidation, that has happened from time-to-time. Obviously, we've had some situations where the bank has sold assets that we have gotten back through foreclosure or repossession of the underlying collateral. So, it has come from a variety of sources. I think it has been encouraging to see that there has been some movement prior to the bank taking action by some borrowers and their ability to get these deals placed in some cases elsewhere. In terms of the write downs, I think as I mentioned previously, we take a fairly conservative posture with respect to asset valuations and as we look at the landscape and see that there may be some weakness in a particular market or an area or we may have some collateral and those are comparable sales, we have taken some hits there too to reflect that overall market activity. So, those are taking place while the asset may be in other real estate and also while it may be in the portfolio going through the foreclosure process. So, a variety of different strategies there based upon the stage of work out of a particular credit. Michael H. Price: Just to add on to Bob’s answer there too, one of the things that we’re happy to see compared to one year ago right now is that there is a lot more activity out there. I think it goes to one part of your question in that a year ago we were having a difficult time when we had control of the collateral, the assets, even developing a market. When we did, it was at some pretty severe discounts to even where we had it written down to. What we are seeing now is we are seeing more players in the market. Prices have firmed up, they are still not great as Bob alluded, a lot of times they match where we have written it down to. But the nice thing is in the fourth quarter, as we sold some of these assets, we weren’t having to take a substantial amount of further write downs, which is a good sign I think going forward. We are much more optimistic right now than we were a year ago as far as getting rid of a lot of the stuff that we have in the portfolio. Terry McEvoy – Oppenheimer & Co., Inc.: Then a question for Chuck, you continue to grow the local deposits, is Mercantile at all under any restrictions that would prohibit you from using any of your traditional wholesale funding sources? Charles E. Christmas: No, Mercantile is under absolutely no restrictions in deposits or any other manner with regulators. Terry McEvoy – Oppenheimer & Co., Inc.: Then just the last question, the constant fears for the last year plus over commercial real estate for a bank in Michigan that does have a sizeable real estate component to their balance sheet, looks like commercial real estate NPAs is flat third quarter to fourth quarter. Are you surprised at how that portfolio is holding up given your markets and then just given the industry concerns? Then, your outlook for commercial real estate going forward too, please? Michael H. Price: We’re somewhat surprised to see a holding in there but on the other side it goes back to what Bob said earlier is, we tried to get out in front of this whole crisis starting really a couple of years ago. We talk about this every call but I think it is instructive to bring it up again that 30% of our non-performers today are still contractually current. What that really means is that they had up to speed on the payments when we moved them in there. That is a theme that we continue on and what that tells you if you are really looking at the numbers is that, hey, we’re trying to find these weaknesses long before they translate into payment issues which they ultimately seem to do. But, we were very gratified to see the commercial portfolios holding in there but we took some of that pain early on, maybe earlier than some other banks have taken it I would suggest. Going forward, we know there is still going to be pressure out there but we feel a little bit more optimistic now that we've really -- and obviously, look, we’ve taken $49 million in reserves out of the income statement during the year. We really addressed aggressively a lot of the issues that we think are going to be problems and really increased that loan loss reserve and feel fairly good that it can hold on here into 2010. We’re not counting on any huge recovery but we think that things may have flattened out a little bit here.

And we will go next to Eileen Rooney – Keefe, Bruyette & Woods. Eileen Rooney – Keefe, Bruyette & Woods: Maybe just a follow up, that was great color on the CRE non-performers. I guess if we could get a little bit of color on what was going on with the C&I non-performers, it seemed like there was a big drop this quarter after spiking up in the third quarter. I am just wondering if it was one large credit that moved out or how you are feeling about that portfolio? Robert B. Kaminski, Jr.: I think during the course of 2009, we had a couple of larger C&I credits that experienced some problems. These credits happened to be automotive related and as those kind of worked them way out and we flushed them through the workout process, we’re able to hopefully get some stability there. That is one of the reasons why we want to affect the shift which will take some time certainly but as we reduce our CRE portfolio to look for some opportunities in non-automotive C&I lending because that has been a much more stable source of lending activity for us and for many banks in this area of the Midwest. Eileen Rooney – Keefe, Bruyette & Woods: Then just one quick question, a follow up on the DTA issue, I understand once you are profitable you will start to get the benefit of those NOLs. But in the interim term when you are not profitable, should we assume that you won’t get any tax deduction for any of the losses that you take? Robert B. Kaminski, Jr.: That would be very likely true, Eileen.

(Operator instructions) We will go next to Stephen Geyen – Stifel Nicolaus & Company, Inc. Stephen Geyen – Stifel Nicolaus & Company, Inc.: Just a real quick question, you mentioned in the release that you had rental income, just wondering if you could provide some color about the amount or the property types? Charles E. Christmas: I have got the amount, I’ll let the other guys talk about the property types. We’re probably on average probably getting about $50,000 to $60,000 a month currently. Robert B. Kaminski, Jr.: That is obviously one of the effects of foreclosing on properties and we become landlords for a bit of time and we are working very diligently to get those properties out so we can reduce those non-performing totals down and let someone else take over the rental stream. Stephen Geyen – Stifel Nicolaus & Company, Inc.: Do you have any ideas or thoughts on the types of properties and the number of properties? Robert B. Kaminski, Jr.: It is many properties consisting of a variety of different kinds. You see some residential rentals, you see some apartment type multifamily structures, you see some retail centers as some may call strip malls that have some rental income from the activity that is there for retail shops. So, it is a wide mixture of different kinds of properties and making up the composition of those rental incomes. Charles E. Christmas: Just to make sure, we continue as we are required to do to gross everything up. So, we show the rental income as other income but all the costs associated with, as Bob said, kind of becoming landlords for a while, are in those non-performing asset costs. Stephen Geyen – Stifel Nicolaus & Company, Inc.: A real quick question on the security portfolio, were there any changes in 2009 to the security portfolio that may be adjusting the risk rating of the portfolio and do you expect anything going forward? Robert B. Kaminski, Jr.: No, Steve. We continue to buy the same type of bonds that we have always bought. Primarily what we have been buying is government agency callable securities. That is mostly what we bought throughout 2009. As you might suspect, we are not buying any tax free municipals. Mortgage pools are there, they are all Fannie and Freddie Mac and a handful of Ginnies. We haven’t been buying a lot of that just because of the lower yields on that. But, no change at all in the risk component of that portfolio and we certainly plan none going forward.

It appears we have no further questions at this time. I will turn it back over to you, Mr. Price. Michael H. Price: Thank you. Thanks again for your attention. And at this point, we will end the call.

That does conclude today’s conference. We thank you for your participation. You may now disconnect.