Mike Price - Chairman, President, and Chief Executive Officer Bob Kaminski - Executive Vice President, and Chief Operating Officer Chuck Christmas - Senior Vice President and Chief Financial Officer

Greg Dodgson - Royal Securities Stephen Geyen - Stifel Nicholaus Terry McEvoy – Oppenheimer Eileen Rooney - Keefe, Bruyette & Woods.

Welcome to the Mercantile Bank Corporation Second 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 statement made today due to important factors described in the company’s latest Security and 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.merbcank.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.

Thank you, and good morning everyone and welcome. Our strategic initiatives continue to provide steady improvement to our results. Asset quality and margin improvement led the way and we almost swung back to profitable status for the quarter. Bob Kaminski will detail the entire dynamic of our loan portfolio and the provision for loan losses during his comments. While we did suffer a small loss for the quarter, significant improvement in our pass-through loans and our nonperforming assets suggest that we may have finally turned a corner in our relentless efforts to counteract the effects of the steep economic downturn. Even if we have turned the corner, we know that upcoming quarters will still be difficult as commercial real estate values remain challenging and the cost of disposing of our remaining ORE portfolio will also be challenging. It is, however, very heartening to see some very tangible signs of improvement in so many areas. Chuck Christmas and Bob will detail these actions in their comments as well. I want to thank our customers for their loyalty and support, our board for its wisdom and vision and our hardworking employees for their dedication and sacrifice. At this time I'm going to turn it over to Chuck Christmas.

On a pre-tax basis, which we believe provides a more accurate comparison of our operating results given the change in our tax position, our net loss during the second quarter of 2010 was $1.2 million compared to a net loss of $9.6 million during the second quarter of 2009. And our net loss during the first 6 months of 2010 was $4.3 million compared to a net loss of $16.9 million during the first 6 months of 2009. While we are of course disappointed any time we have to report a net loss, we are encouraged with the significant improvement in our operating results as well as the continued improvement in may key areas of our financial condition and performance. Our financial performance during 2010, like that throughout 2009 and 2008, has been impacted by a significant provision expense. Unfortunately, continued state, regional, and national economic struggles have negatively impacted some of our borrowers' cash flows and underlying collateral values, leading to increased nonperforming assets, higher loan charge offs, and increased overall credit risk within our loan portfolio when compared to historical norms. From the time we sensed economic weakness over 2 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 nonperforming asset administration and resolution costs will likely remain higher than historical levels, dampening future earnings performance. But during the second quarter of 2010, we saw the continuation of very positive trends we reported for the first quarter of 2010, and throughout 2009 as well, and I'd like to touch on some of them. Despite a reduction in our total earning assets, an improved net interest margin has provided for increased net interest income. Net interest income during the second quarter of 2010 was $2 million higher, an increase of 16% over the second quarter of 2009. Our net interest margins during the second quarter of 2010 was 3.31%, compared to 2.50% during the second quarter of 2009, an improvement of 81 basis points, or over 32%. The improvement is primarily due to a significant decline in our cost of funds. While we expect further reductions in our cost of funds during the remainder of 2010, it will likely be at a much slower pace than during the past several quarters. For the remainder of 2010, we have about $280 million in wholesale funds maturing at an average rate of 1.80%. For perspective, our average rate on new wholesale funds was about 1% during the second quarter. 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 almost completely mitigated the negative impact of the increase in non-accrual loans. Overhead cost reduction strategies are becoming realized. Salaries and benefits, occupancy, and furniture and equipment costs declined $0.9 million or 14% during the second quarter of 2010 compared to the second quarter of 2009. Nonperforming asset administration and resolution costs totaled $2.5 million during the second quarter of 2010, almost unchanged from the first quarter of 2010, but up from the $1.1 million expensed during the second quarter of 2009. During the second quarter of 2010, valuation writedowns on foreclosed properties totaled $0.7 million while property tax payments and legal expenses both totaled $0.6 million. We remain a well-capitalized banking organization and our regulatory ratios have increased throughout 2010. As of June 30, our banks' total risk-based capital ratio was 11.9% and in dollars was over $29 million higher than the 10% minimum required to be categorized as well-capitalized. At the beginning of the year our banks' total risk-based capital ratio was $11.1 million, and the surplus about $18.5 million. Local deposit sweep accounts were up $13 million during the first 6 months of this year and are up $224 million since the beginning of 2009. Combined with the reduction in our loan portfolio, we have been able to reduce our level of wholesale funds by $580 million since the beginning of 2009. As a percent of total funds, wholesale funds have declined from 71% at the beginning of 2009 to 51% at the end of the second quarter. Our loan loss reserve was $47.7 at the end of the second quarter, almost unchanged from the balance at the beginning of the year. However, with the reduction in total loans throughout this year, the reserve as percent of total loans has increased from 3.11% at the beginning of the year, to 3.38% at the end of the second quarter.

Thank you Chuck. My comments today will address asset quality performance during the second quarter. As usual, our press release has much information in tabular form, aligning the key statistics for the quarter, so my comments will amplify, and in some cases add color to that information. Mercantile continued to see some signs of stabilization in the key metrics in the marketplace and in the loan portfolio. As we noted in the first quarter, there has been an uptick in the inquiries and movement of real estate, including some troubled asset real estate, although low values are still a significant challenge. Additionally, some commercial industrial customers are experiencing increased backlogs for the rest of 2010 and into 2011. Nonperforming assets at June 30 showed a $7 million net decrease from the totals at March 31. That net decrease was reflected and led by a reduction of over $2.2 million in non-real estate commercial loan types, plus over $1 million in net reductions, each in nonperforming assets in the residential land development, residential construction, and commercial owner-occupied asset categories. Offsetting $13 million in new nonperforming loans in the second quarter were $7.3 million in principal payments, $2.4 million in sales proceeds, $1.4 million in loans returning to performing status, and $8.2 million in chargeoffs. Also included in nonperforming asset totals are $5.9 million in restructured but accruing loans where the bank is working with the distressed borrowers to provide relief with some loan modifications. Total net chargeoffs during the quarter totaled $8.6 million compared to $6.2 million in the first quarter. It should be noted that the second quarter number is net of $1.3 million in loan recoveries. These were loans that were previously charged off and the recoveries were possible by diligent and persistent collection activities. $2.5 million of the second quarter chargeoff was attributable to non-owner-occupied commercial real estate. $1.9 million was attributable to residential real estate development and construction loans, and $1.6 million was attributable to commercial and industrial loans. Provision expense totaled $6.2 million during the quarter. The major allocations of that provision among the various loan types show $3.9 million for non-owner-occupied commercial real estate and owner-occupied commercial real estate, $2.5 million for residential real estate development and construction, $1 million for residential real estate first liens including rentals, and finally a benefit of $2.2 million was derived from those $1.3 million in recoveries plus portfolio reductions. Loans delinquent 30-89 days totaled $370,000 at June 30. This compares favorably to $12.8 million as of March 31, $982,000 at December 31, 2009, $8.3 million at September 30, 2009, $8.0 million at June 30, 2009, $2.6 at year end 2008, and $1.4 million 2 full years ago at June 30, 2008. Mercantile continues to make good progress in its goal of reducing the level of commercial real estate in the portfolio. For the year to date 2010 the various categories of commercial real estate have been reduced by a total of $82 million in outstandings and commitments. As I mentioned, much more information is included in the press release, and I'll be happy to answer any questions in Q&A. And now I'll turn it back over to Mike.

Thanks Bob, and thank you Chuck for your comments. At this point we would like to open it up for Q&A. :

Stephen Geyen - Stifel Nicholaus:

Stephen Geyen - Stifel Nicholaus:

Stephen Geyen - Stifel Nicholaus:

Terry McEvoy – Oppenheimer:

Terry McEvoy – Oppenheimer:

Terry McEvoy – Oppenheimer:

Greg Dodgson - Royal Securities:

Eileen Rooney – KBW:

That's a good question and I'll try to answer it. As you know, we don't really particularly pay a lot of attention to does the chargeoff number and the provision number match up. That, in our point of view, has nothing to do with anything. Although I know some people are really concerned about that, what's more important is what is the provision as to where things are looking at in your portfolio, and as you might imagine some very positive things happened in the second quarter because the provision did come down a little bit. But if you look back at the first quarter and the fourth quarter, we hit some real strong provision numbers in those quarters, especially the fourth quarter, because we weren't sure of a couple of major things. One of them was we provided for a couple of loans that had some strong personal guarantees on them, but we were not sure of how those guarantees were going to be collected. And fortunately during the last two quarters we collected a lot of that money that we had provided for in case we weren't able to collect on those unsecured personal guarantees. So that in effect gave us a little wiggle room if you will, as to not having to provide for that in the first or second quarters. And finally, the overlay is is that you're exactly right, your view that nonperformers have seemed to cop out a little bit. Our watch list numbers have started to trend down, which is the first time in probably a long long time we've been able to say that.

Thanks again for your interest in our company. If you do have any follow up questions please feel free to give Chuck or Bob or myself a call, and we will talk to you again next time.