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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-26719
 MERCANTILE BANK CORPORATION
  Michigan
    
    38-3360865(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)310 Leonard Street NW, Grand Rapids, Michigan
    
    49504(Address of principal executive offices)
    
    (Zip Code)
 (616) 406-3000
 (Registrants telephone number, including area code)
  Title of each class
    
    
    
    Name of each exchange on which
registeredCommon Stock
    
    
    
    The Nasdaq Stock Market LLC
  o þ
 o þ
 þ o
 o
  o þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESAmendment dated October 18, 2001 to Mercantile Bank of West Michigan Deferred Compensation Plan for Members of the Board of DirectorsMercantile Bank of Michigan Amended and Restated Deferred Compensation Plan for Members of the Board of DirectorsFirst Amendment dated October 10, 2007 to the Mercantile Bank of Michigan Amended and Restated Deferred Compensation Plan for Members of the Board of DirectorsExtension Agreement of Data Processing ContractForm of Mercantile Bank of Michigan Amended and Restated Executive Deferred Compensation AgreementForm of First Amendment to the Mercantile Bank of Michigan Executive Deferred Compensation AgreementDirector Fee SummaryForm of Notice of Grant of Incentive Stock Option and Stock Option AgreementForm of Restricted Stock Award Agreement Notification of Award and Terms and Conditions of AwardLease AgreementSubsidiaries of the CompanyConsent of BDO Seidman, LLPConsent of Crowe Chizek and Company LLCRule 13a-14(a) CertificationsSection 1350 Chief Executive Officer CertificationSection 1350 Chief Financial Officer Certification    Table of Contents  
 PART I
 
 Item 1. Business.
 The Company
     Our Bank
  th
 2




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Our Mortgage Company
  Our Insurance Company
  Our Real Estate Company
  The Mercantile Trust
  3




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Effect of Government Monetary Policies
  Regulation and Supervision
      4




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Employees
  Lending Policy
     Lending Activity
 Commercial Loans.
 5




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Single-Family Residential Real Estate Loans.
  Consumer Loans.
   6




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Loan and Lease Portfolio Quality
     Allowance for Loan and Lease Losses
   7




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Investments
 Bank Holding Company Investments
   8




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Our Banks Investments
  Competition
  Selected Statistical Information
  Return on Equity and Assets
  Available Information
 www.mercbank.com
 9




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Item 1A. Risk Factors.
  Adverse changes in economic conditions or interest rates may negatively affect our earnings,
capital and liquidity.
  Our credit losses could increase and our allowance for loan and lease losses may not be adequate to
cover actual loan losses.
  We rely heavily on our management and other key personnel, and the loss of any of them may
adversely affect our operations.
  10




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Decline in the availability of out-of-area deposits could cause liquidity or interest rate margin
concerns, or limit our growth.
  Future sales of our common stock or other securities may dilute the value of our common stock.
  Our growth and expansion may be limited by many factors.
  11




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Our future success is dependent on our ability to compete effectively in the highly competitive
banking industry.
  We are subject to significant government regulation, and any regulatory changes may adversely
affect us.
  We continually encounter technological change, and we may have fewer resources than our competitors
to continue to invest in technological improvements.
  12




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Our Articles of Incorporation and By-laws and the laws of Michigan contain provisions that may
discourage or prevent a takeover of our company and reduce any takeover premium.
   There is a limited trading market for our common stock.
    Our business is subject to operational risks.
  13




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties.
      14




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th
    
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  15




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##### Table of Contents



High
    
    Low
    
    Dividend2007First Quarter
    
    $
    36.62
    
    
    $
    29.30
    
    
    $
    0.13Second Quarter
    
    
    31.43
    
    
    
    26.59
    
    
    
    0.14Third Quarter
    
    
    27.40
    
    
    
    19.86
    
    
    
    0.14Fourth Quarter
    
    
    22.70
    
    
    
    14.49
    
    
    
    0.142006First Quarter
    
    $
    36.38
    
    
    $
    34.01
    
    
    $
    0.11Second Quarter
    
    
    39.57
    
    
    
    33.61
    
    
    
    0.12Third Quarter
    
    
    39.10
    
    
    
    35.16
    
    
    
    0.12Fourth Quarter
    
    
    38.87
    
    
    
    35.30
    
    
    
    0.12
       16




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Period EndingIndex
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07Mercantile Bank Corporation
    
    
    
    100.00
    
    
    
    
    163.88
    
    
    
    
    188.10
    
    
    
    
    194.47
    
    
    
    
    202.59
    
    
    
    
    89.59NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    150.01
    
    
    
    
    162.89
    
    
    
    
    165.13
    
    
    
    
    180.85
    
    
    
    
    198.60SNL Bank NASDAQ Index
    
    
    
    100.00
    
    
    
    
    129.08
    
    
    
    
    147.94
    
    
    
    
    143.43
    
    
    
    
    161.02
    
    
    
    
    126.42
 
 Item 6. Selected Financial Data.
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  17




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Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
    Internal Control
 Integrated Framework Internal Control  Integrated
Framework
  
 Item 9B. Other Information.
  18




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
  19




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Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    Weighted average
    
    equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options,
    
    securities reflected inPlan Category
    
    warrants and rights
    
    warrants and rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation plans approved by
security holders
(1)
    
    
    271,755
    
    
    $
    24.34
    
    
    
    502,000
    (2)Equity compensation plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    271,755
    
    
    $
    24.34
    
    
    
    502,000
 
 (1)
    
    These plans are Mercantiles 1997 Employee Stock Option Plan, 2000 Employee Stock Option Plan,
2004 Employee Stock Option Plan, Independent Director Stock Option Plan and the Stock Incentive
Plan of 2006.(2)
    
    These securities are available under the Stock Incentive Plan of 2006. Incentive awards may
include, but are not limited to, stock options, restricted stock, stock appreciation rights and
stock awards. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  20




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PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
          (2)
    
    Financial Statement SchedulesNot applicable
 (b)
    
    Exhibits:
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    Our Articles of Incorporation are incorporated by reference to
exhibit 3.1 of our Form 10-Q for the quarter ended June 30,
20043.2
    
    Our Amended and Restated Bylaws dated as of January 16, 2003
are incorporated by reference to exhibit 3.2 of our
Registration Statement on Form S-3 (Commission File No.
333-103376) that became effective on February 21, 200310.1
    
    Our 1997 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Registration Statement on
Form SB-2 (Commission File No. 333-33081) that became
effective on October 23, 1997 *10.2
    
    Our 2000 Employee Stock Option Plan is incorporated by
reference to exhibit 10.14 of our Form 10-K for the year ended
December 31, 2000 *10.3
    
    Our 2004 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Form 10-Q for the quarter
ended September 30, 2004 *
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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.4
    
    Form of Stock Option Agreement for options under the 2004
Employee Stock Option Plan is incorporated by reference to
exhibit 10.2 of our Form 10-Q for the quarter ended September
30, 2004 *10.5
    
    Our Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.26 of our Form 10-K for the year ended
December 31, 2002 *10.6
    
    Form of Stock Option Agreement for options under the
Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Form 8-K filed October 22,
2004 *10.7
    
    Mercantile Bank of West Michigan Deferred Compensation Plan
for Members of the Board of Directors (1999) is incorporated
by reference to Exhibit 10.6 of the Registration Statement of
the company and our trust on Form SB-2 (Commission File Nos.
333-84313 and 333-84313-01) that became effective on September
13, 1999 *10.8
    
    Amendment dated October 18, 2001 to Mercantile Bank of West
Michigan Deferred Compensation Plan for Members of the Board
of Directors (1999)10.9
    
    Mercantile Bank of Michigan Amended and Restated Deferred
Compensation Plan for Members of the Board of Directors dated
June 29, 200610.10
    
    First Amendment dated October 10, 2007 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 200610.11
    
    Agreement between Fiserv Solutions, Inc. and our bank dated
September 10, 1997, is incorporated by reference to exhibit
10.3 of our Registration Statement on Form SB-2 (Commission
File No. 333-33081) that became effective on October 23, 199710.12
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated May 12, 2000 extending the
agreement between Fiserv Solutions, Inc. and our bank dated
September 10, 1997, is incorporated by reference to exhibit
10.15 of our Form 10-K for the year ended December 31, 200010.13
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated November 21, 2002 extending
the agreement between Fiserv Solutions, Inc. and our bank
dated September 10, 1997, is incorporated by reference to
exhibit 10.5 of our Form 10-K for the year ended December 31,
200210.14
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated December 20, 2006 extending
the agreements between Fiserv Solutions, Inc. and our bank
dated September 10, 1997 and November 21, 200210.15
    
    Amended and Restated Employment Agreement dated as of October
18, 2001, among the company, our bank and Gerald R. Johnson,
Jr., is incorporated by reference to exhibit 10.21 of our Form
10-K for the year ended December 31, 2001 *10.16
    
    Amended and Restated Employment Agreement dated as of October
18, 2001, among the company, our bank and Michael H. Price, is
incorporated by reference to exhibit 10.22 of our Form 10-K
for the year ended December 31, 2001 *
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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.17
    
    Employment Agreement dated as of October 18, 2001, among the
company, our bank and Robert B. Kaminski, Jr., is incorporated
by reference to exhibit 10.23 of our Form 10-K for the year
ended December 31, 2001 *10.18
    
    Employment Agreement dated as of October 18, 2001, among the
company, our bank and Charles E. Christmas, is incorporated by
reference to exhibit 10.23 of our Form 10-K for the year ended
December 31, 2001 *10.19
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Gerald R. Johnson, Jr.,
is incorporated by reference to exhibit 10.21 of our Form 10-K
for the year ended December 31, 2002 *10.20
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Michael H. Price, is
incorporated by reference to exhibit 10.22 of our Form 10-K
for the year ended December 31, 2002 *10.21
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Robert B. Kaminski, Jr.,
is incorporated by reference to exhibit 10.23 of our Form 10-K
for the year ended December 31, 2002 *10.22
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Charles E. Christmas, is
incorporated by reference to exhibit 10.24 of our Form 10-K
for the year ended December 31, 2002 *10.23
    
    Amendment to Employment Agreement dated as of October 28,
2004, among the company, our bank and Robert B. Kaminski, Jr.,
is incorporated by reference to exhibit 10.21 of our Form 10-K
for the year ended December 31, 2004 *10.24
    
    Junior Subordinated Indenture between us and Wilmington Trust
Company dated September 16, 2004 providing for the issuance of
the Series A and Series B Floating Rate Junior Subordinated
Notes due 2034 is incorporated by reference to exhibit 10.1 of
our Form 8-K filed December 15, 200410.25
    
    Amended and Restated Trust Agreement dated September 16, 2004
for Mercantile Bank Capital Trust I is incorporated by
reference to exhibit 10.2 of our Form 8-K filed December 15,
200410.26
    
    Placement Agreement between us, Mercantile Bank Capital Trust
I, and SunTrust Capital Markets, Inc. dated September 16, 2004
is incorporated by reference to exhibit 10.3 of our Form 8-K
filed December 15, 200410.27
    
    Guarantee Agreement dated September 16, 2004 between
Mercantile as Guarantor and Wilmington Trust Company as
Guarantee Trustee is incorporated by reference to exhibit 10.4
of our Form 8-K filed December 15, 200410.28
    
    Form of Agreement Amending Stock Option Agreement, dated
November 17, 2005 issued under our 2004 Employee Stock Option
Plan, is incorporated by reference to exhibit 10.1 of our Form
8-K filed December 14, 2005 *10.29
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Gerald R. Johnson,
Jr. is incorporated by reference to exhibit 10.28 of our Form
10-K for the year ended December 31, 2005 *
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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.30
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Michael H. Price is
incorporated by reference to exhibit 10.29 of our Form 10-K
for the year ended December 31, 2005 *10.31
    
    Third Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Robert B. Kaminski,
Jr. is incorporated by reference to exhibit 10.30 of our Form
10-K for the year ended December 31, 2005 *10.32
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Charles E. Christmas
is incorporated by reference to exhibit 10.31 of our Form 10-K
for the year ended December 31, 2005 *10.33
    
    Form of Mercantile Bank of Michigan Executive Deferred
Compensation Agreement, that has been entered into between our
bank and each of Gerald R. Johnson, Jr., Michael H. Price,
Robert B. Kaminski, Jr., Charles E. Christmas, and certain
other officers of our bank is incorporated by reference to
exhibit 10.32 of our Form 10-K for the year ended December 31,
2005 *10.34
    
    Form of Mercantile Bank of Michigan Amended and Restated
Executive Deferred Compensation Agreement dated November 18,
2006, that has been entered into between our bank and each of
Gerald R. Johnson, Jr., Michael H. Price, Robert B. Kaminski,
Jr., Charles E. Christmas, and certain other officers of our
bank *10.35
    
    Form of First Amendment to the Mercantile Bank of Michigan
Executive Deferred Compensation Agreement dated November 18,
2006, that has been entered into between our bank and each of
Gerald R. Johnson, Jr., Michael H. Price, Robert B. Kaminski,
Jr., Charles E. Christmas, and certain other officers of our
bank, dated October 25, 2007 *10.36
    
    Form of Mercantile Bank of Michigan Split Dollar Agreement
that has been entered into between our bank and each of Gerald
R. Johnson, Jr., Michael H. Price, Robert B. Kaminski, Jr.,
Charles E. Christmas, and certain other officers of our bank
is incorporated by reference to exhibit 10.33 of our Form 10-K
for the year ended December 31, 2005 *10.37
    
    Director Fee Summary *10.38
    
    Lease Agreement between our bank and The Conlin Company dated
July 12, 2005 for our Ann Arbor, Michigan office is
incorporated by reference to exhibit 10.36 of our Form 10-K
for the year ended December 31, 200510.39
    
    Stock Incentive Plan of 2006 is incorporated by reference to
Appendix A of our proxy statement for our April 27, 2006
annual meeting of shareholders that was filed with the
Securities and Exchange Commission *10.40
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted in 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed November 22,
2006 *
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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.41
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted after
2006 under our Stock Incentive Plan of 2006 *10.42
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
in 2006 under our Stock Incentive Plan of 2006 is incorporated
by reference to exhibit 10.2 of our Form 8-K filed November
22, 2006 *10.43
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
after 2006 under our Stock Incentive Plan of 2006 *10.44
    
    Executive Officer Bonus Plan for 2007 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed January 29,
2007 *10.45
    
    Retirement Agreement by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 8-K
filed May 25, 2007 *10.46
    
    Additional Release of Claims Pursuant to Retirement Agreement
Dated May 24, 2007 by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 10-Q for
the quarter ended September 30, 2007 *10.47
    
    Lease Agreement between our bank and CD Partners LLC dated
October 2, 2007 for our Oakland County, Michigan office21
    
    Subsidiaries of the company23.1
    
    Consent of BDO Seidman, LLP23.2
    
    Consent of Crowe Chizek and Company LLC31
    
    Rule 13a-14(a) Certifications32.1
    
    Section 1350 Chief Executive Officer Certification32.2
    
    Section 1350 Chief Financial Officer Certification
 
 *
    
    Management contract or compensatory plan (c)
    
    Financial Statements Not Included In Annual ReportNot applicable
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MERCANTILE BANK CORPORATION
 FINANCIAL INFORMATION
 F-1




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SELECTED FINANCIAL DATA
    
    
    F-3MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    F-4REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    
    F-27REPORT BY MERCANTILE BANK CORPORATIONS MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
    
    
    F-30CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    F-31CONSOLIDATED STATEMENTS OF INCOME
    
    
    F-32CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    
    
    F-33CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-35NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-37
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SELECTED FINANCIAL DATA
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands except per share data)Consolidated Results of Operations:Interest income
    
    $
    144,181
    
    
    $
    137,260
    
    
    $
    102,130
    
    
    $
    69,022
    
    
    $
    54,658Interest expense
    
    
    88,624
    
    
    
    75,673
    
    
    
    46,838
    
    
    
    26,595
    
    
    
    23,395Net interest income
    
    
    55,557
    
    
    
    61,587
    
    
    
    55,292
    
    
    
    42,427
    
    
    
    31,263Provision for loan and lease losses
    
    
    11,070
    
    
    
    5,775
    
    
    
    3,790
    
    
    
    4,674
    
    
    
    3,800Noninterest income
    
    
    5,870
    
    
    
    5,261
    
    
    
    5,661
    
    
    
    4,302
    
    
    
    4,409Noninterest expense
    
    
    38,356
    
    
    
    32,262
    
    
    
    31,117
    
    
    
    23,198
    
    
    
    18,071Income before income tax expense
    
    
    12,001
    
    
    
    28,811
    
    
    
    26,046
    
    
    
    18,857
    
    
    
    13,801Income tax expense
    
    
    3,035
    
    
    
    8,964
    
    
    
    8,145
    
    
    
    5,136
    
    
    
    3,785Net income
    
    $
    8,966
    
    
    $
    19,847
    
    
    $
    17,901
    
    
    $
    13,721
    
    
    $
    10,016Consolidated Balance Sheet Data:Total assets
    
    $
    2,121,403
    
    
    $
    2,067,268
    
    
    $
    1,838,210
    
    
    $
    1,536,119
    
    
    $
    1,203,337Cash and cash equivalents
    
    
    29,430
    
    
    
    51,380
    
    
    
    36,753
    
    
    
    20,811
    
    
    
    16,564Securities
    
    
    211,736
    
    
    
    202,419
    
    
    
    181,614
    
    
    
    152,965
    
    
    
    121,510Loans and leases, net of deferred fees
    
    
    1,799,880
    
    
    
    1,745,478
    
    
    
    1,561,812
    
    
    
    1,317,124
    
    
    
    1,035,963Allowance for loan and lease losses
    
    
    25,814
    
    
    
    21,411
    
    
    
    20,527
    
    
    
    17,819
    
    
    
    14,379Bank owned life insurance policies
    
    
    39,118
    
    
    
    30,858
    
    
    
    28,071
    
    
    
    23,750
    
    
    
    16,441Deposits
    
    
    1,591,181
    
    
    
    1,646,903
    
    
    
    1,419,352
    
    
    
    1,159,181
    
    
    
    902,892Securities sold under agreements to repurchase
    
    
    97,465
    
    
    
    85,472
    
    
    
    72,201
    
    
    
    56,317
    
    
    
    49,545Federal Home Loan Bank advances
    
    
    180,000
    
    
    
    95,000
    
    
    
    130,000
    
    
    
    120,000
    
    
    
    90,000Subordinated debentures
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    16,495Shareholders equity
    
    
    178,155
    
    
    
    171,915
    
    
    
    155,125
    
    
    
    141,617
    
    
    
    130,201Consolidated Financial Ratios:Return on average assets
    
    
    0.43
    %
    
    
    1.01
    %
    
    
    1.05
    %
    
    
    0.99
    %
    
    
    0.96
    %Return on average shareholders equity
    
    
    5.10
    %
    
    
    12.19
    %
    
    
    12.05
    %
    
    
    10.16
    %
    
    
    10.61
    %Average shareholders equity to average assets
    
    
    8.44
    %
    
    
    8.31
    %
    
    
    8.73
    %
    
    
    9.79
    %
    
    
    9.00
    %Nonperforming loans and leases to total loans and leases
    
    
    1.66
    %
    
    
    0.49
    %
    
    
    0.26
    %
    
    
    0.22
    %
    
    
    0.17
    %Allowance for loan and lease losses to total loans and leases
    
    
    1.43
    %
    
    
    1.23
    %
    
    
    1.31
    %
    
    
    1.35
    %
    
    
    1.39
    %Tier 1 leverage capital
    
    
    9.97
    %
    
    
    10.04
    %
    
    
    10.45
    %
    
    
    11.53
    %
    
    
    12.49
    %Tier 1 leverage risk-based capital
    
    
    10.14
    %
    
    
    10.37
    %
    
    
    10.82
    %
    
    
    11.82
    %
    
    
    12.60
    %Total risk-based capital
    
    
    11.39
    %
    
    
    11.45
    %
    
    
    12.00
    %
    
    
    13.03
    %
    
    
    13.84
    %Per Share Data:Net Income:Basic
    
    $
    1.06
    
    
    $
    2.36
    
    
    $
    2.14
    
    
    $
    1.65
    
    
    $
    1.42Diluted
    
    
    1.06
    
    
    
    2.33
    
    
    
    2.10
    
    
    
    1.61
    
    
    
    1.39Book value at end of period
    
    
    20.89
    
    
    
    21.43
    
    
    
    19.46
    
    
    
    17.78
    
    
    
    16.40Dividends declared
    
    
    0.55
    
    
    
    0.48
    
    
    
    0.39
    
    
    
    0.30
    
    
    
    0.26Dividend payout ratio
    
    
    52.16
    %
    
    
    20.34
    %
    
    
    17.79
    %
    
    
    18.60
    %
    
    
    18.41
    %
 F-3




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Allowance For Loan and Lease Losses
 F-4




---



##### Table of Contents



INTRODUCTION
      F-5




---



##### Table of Contents



FINANCIAL CONDITION
  Earning Assets
    F-6




---



##### Table of Contents



Residential  Vacant Land
    
    $
    19,730,000Residential  Land Development
    
    
    64,107,000Residential  Construction
    
    
    30,828,000Commercial  Vacant Land
    
    
    27,664,000Commercial  Land Development
    
    
    31,754,000Commercial  Construction NonOwner Occupied
    
    
    80,926,000Commercial  Construction Owner Occupied
    
    
    7,906,000Commercial  NonOwner Occupied
    
    
    519,720,000Commercial  Owner Occupied
    
    
    374,596,000Total
    
    $
    1,157,231,000
   0-1
    
    
    1-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    TotalConstruction and land development
    
    $
    210,037,000
    
    
    $
    47,282,000
    
    
    $
    6,549,000
    
    
    $
    263,868,000Real estate  secured by 1-4 family
properties
    
    
    68,898,000
    
    
    
    52,552,000
    
    
    
    14,067,000
    
    
    
    135,517,000Real estate  secured by multi-family
properties
    
    
    28,283,000
    
    
    
    23,505,000
    
    
    
    163,000
    
    
    
    51,951,000Real estate  secured by
nonresidential properties
    
    
    390,585,000
    
    
    
    427,921,000
    
    
    
    37,366,000
    
    
    
    855,872,000Commercial
    
    
    381,074,000
    
    
    
    97,993,000
    
    
    
    5,578,000
    
    
    
    484,645,000Leases
    
    
    181,000
    
    
    
    2,684,000
    
    
    
    0
    
    
    
    2,865,000Consumer
    
    
    1,967,000
    
    
    
    2,589,000
    
    
    
    606,000
    
    
    
    5,162,000$
    1,081,025,000
    
    
    $
    654,526,000
    
    
    $
    64,329,000
    
    
    $
    1,799,880,000Fixed rate loans
    
    $
    125,738,000
    
    
    $
    653,542,000
    
    
    $
    64,329,000
    
    
    $
    843,609,000Floating rate loans
    
    
    955,287,000
    
    
    
    984,000
    
    
    
    0
    
    
    
    956,271,000$
    1,081,025,000
    
    
    $
    654,526,000
    
    
    $
    64,329,000
    
    
    $
    1,799,880,000
  F-7




---



##### Table of Contents



Nonperforming
    
    
    Net LoanAssets
    
    
    Charge-OffsResidential  Land Development
    
    $
    8,066,000
    
    
    $
    1,384,000Residential  Construction
    
    
    3,066,000
    
    
    
    36,000Residential  Owner Occupied / Rental
    
    
    3,170,000
    
    
    
    1,536,000Commercial  Land Development
    
    
    542,000
    
    
    
    0Commercial  Owner Occupied
    
    
    6,447,000
    
    
    
    714,000Commercial  NonOwner Occupied
    
    
    7,307,000
    
    
    
    1,854,000Commercial  NonReal Estate
    
    
    7,091,000
    
    
    
    1,096,000Consumer  NonReal Estate
    
    
    15,000
    
    
    
    47,000Total
    
    $
    35,704,000
    
    
    $
    6,667,000
  December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Loans and leases on
nonaccrual status
    
    $
    28,832,000
    
    
    $
    7,752,000
    
    
    $
    3,601,000
    
    
    $
    2,842,000
    
    
    $
    233,000Loans and leases 90
days or more past
due and accruing
interest
    
    
    977,000
    
    
    
    819,000
    
    
    
    394,000
    
    
    
    0
    
    
    
    1,552,000Troubled debt
restructurings
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    29,809,000
    
    
    $
    8,571,000
    
    
    $
    3,995,000
    
    
    $
    2,842,000
    
    
    $
    1,785,000
 F-8




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##### Table of Contents



2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Loan and leases outstanding at year-end
    
    $
    1,799,880,000
    
    
    $
    1,745,478,000
    
    
    $
    1,561,812,000
    
    
    $
    1,317,124,000
    
    
    $
    1,035,963,000Daily average balance of loans and
leases outstanding
    
    $
    1,765,465,000
    
    
    $
    1,660,284,000
    
    
    $
    1,432,609,000
    
    
    $
    1,177,568,000
    
    
    $
    887,512,000Balance of allowance at beginning of
year
    
    $
    21,411,000
    
    
    $
    20,527,000
    
    
    $
    17,819,000
    
    
    $
    14,379,000
    
    
    $
    10,890,000Loans and leases charged-off:Commercial, financial and agricultural
    
    
    (4,232,000
    )
    
    
    (5,208,000
    )
    
    
    (718,000
    )
    
    
    (1,328,000
    )
    
    
    (471,000
    )Construction and land development
    
    
    (1,353,000
    )
    
    
    0
    
    
    
    (521,000
    )
    
    
    0
    
    
    
    0Leases
    
    
    (18,000
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Residential real estate
    
    
    (1,618,000
    )
    
    
    (50,000
    )
    
    
    (131,000
    )
    
    
    (16,000
    )
    
    
    (26,000
    )Instalment loans to individuals
    
    
    (53,000
    )
    
    
    (131,000
    )
    
    
    (22,000
    )
    
    
    (61,000
    )
    
    
    (99,000
    )Total loans and leases charged-off
    
    
    (7,274,000
    )
    
    
    (5,389,000
    )
    
    
    (1,392,000
    )
    
    
    (1,405,000
    )
    
    
    (596,000
    )Recoveries of previously charged-off
loans and leases:Commercial, financial and agricultural
    
    
    586,000
    
    
    
    487,000
    
    
    
    298,000
    
    
    
    150,000
    
    
    
    257,000Construction and land development
    
    
    11,000
    
    
    
    0
    
    
    
    2,000
    
    
    
    0
    
    
    
    0Leases
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Residential real estate
    
    
    3,000
    
    
    
    2,000
    
    
    
    6,000
    
    
    
    0
    
    
    
    22,000Instalment loans to individuals
    
    
    7,000
    
    
    
    9,000
    
    
    
    4,000
    
    
    
    21,000
    
    
    
    6,000Total recoveries
    
    
    607,000
    
    
    
    498,000
    
    
    
    310,000
    
    
    
    171,000
    
    
    
    285,000Net charge-offs
    
    
    (6,667,000
    )
    
    
    (4,891,000
    )
    
    
    (1,082,000
    )
    
    
    (1,234,000
    )
    
    
    (311,000
    )Provision for loan and leases losses
    
    
    11,070,000
    
    
    
    5,775,000
    
    
    
    3,790,000
    
    
    
    4,674,000
    
    
    
    3,800,000Balance of allowance at year-end
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000
    
    
    $
    17,819,000
    
    
    $
    14,379,000Ratio of net charge-offs during the
period to average loans and leases
outstanding during the period
    
    
    (0.38
    %)
    
    
    (0.29
    %)
    
    
    (0.08
    %)
    
    
    (0.10
    %)
    
    
    (0.04
    %)Ratio of allowance to loans and leases
outstanding at end of the period
    
    
    1.43
    %
    
    
    1.23
    %
    
    
    1.31
    %
    
    
    1.35
    %
    
    
    1.39
    %
   F-9




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##### Table of Contents



December 31,2007
    
    
    December 31,2006
    
    
    December 31,2005
    
    
    December 31,2004
    
    
    December 31,2003Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    LoanAmount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    PortfolioCommercial,
financial and
agricultural
    
    $
    18,947
    
    
    
    77.4
    %
    
    $
    15,706
    
    
    
    74.7
    %
    
    $
    16,507
    
    
    
    76.9
    %
    
    $
    15,457
    
    
    
    79.8
    %
    
    $
    12,220
    
    
    
    79.0
    %Construction and
land development
    
    
    4,907
    
    
    
    14.7
    
    
    
    3,975
    
    
    
    17.1
    
    
    
    2,868
    
    
    
    14.5
    
    
    
    1,581
    
    
    
    10.3
    
    
    
    1,571
    
    
    
    11.4Leases
    
    
    29
    
    
    
    0.1
    
    
    
    15
    
    
    
    0.1
    
    
    
    30
    
    
    
    0.1
    
    
    
    39
    
    
    
    0.2
    
    
    
    26
    
    
    
    0.2Residential real
estate
    
    
    1,829
    
    
    
    7.5
    
    
    
    1,591
    
    
    
    7.6
    
    
    
    1,020
    
    
    
    8.2
    
    
    
    557
    
    
    
    9.3
    
    
    
    450
    
    
    
    8.9Instalment loans to
individuals
    
    
    102
    
    
    
    0.3
    
    
    
    124
    
    
    
    0.5
    
    
    
    102
    
    
    
    0.3
    
    
    
    185
    
    
    
    0.4
    
    
    
    112
    
    
    
    0.5Unallocated
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0Total
    
    $
    25,814
    
    
    
    100.0
    %
    
    $
    21,411
    
    
    
    100.0
    %
    
    $
    20,527
    
    
    
    100.0
    %
    
    $
    17,819
    
    
    
    100.0
    %
    
    $
    14,379
    
    
    
    100.0
    %
    F-10




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Percentage
    
    
    Value
    
    
    Percentage
    
    
    Value
    
    
    PercentageU.S. Government
agency debt
obligations
    
    $
    80,945,000
    
    
    
    40.1
    %
    
    $
    76,836,000
    
    
    
    39.4
    %
    
    $
    63,712,000
    
    
    
    36.7
    %Mortgage-backed securities
    
    
    54,619,000
    
    
    
    27.0
    
    
    
    53,083,000
    
    
    
    27.2
    
    
    
    48,237,000
    
    
    
    27.7Municipal general obligations
    
    
    57,668,000
    
    
    
    28.5
    
    
    
    56,870,000
    
    
    
    29.2
    
    
    
    53,685,000
    
    
    
    30.9Municipal revenue bonds
    
    
    7,662,000
    
    
    
    3.8
    
    
    
    7,073,000
    
    
    
    3.6
    
    
    
    7,081,000
    
    
    
    4.1Mutual fund
    
    
    1,109,000
    
    
    
    0.6
    
    
    
    1,048,000
    
    
    
    0.6
    
    
    
    1,012,000
    
    
    
    0.6Total
    
    $
    202,003,000
    
    
    
    100.0
    %
    
    $
    194,910,000
    
    
    
    100.0
    %
    
    $
    173,727,000
    
    
    
    100.0
    %
 Accounting for Certain Investments in Debt and Equity Securities
 (1)
 Carrying
    
    
    AverageValue
    
    
    YieldU.S. Treasury securities and obligations of U.S.Government agencies and corporationsOne year or less
    
    $
    0
    
    
    NAOver one through five years
    
    
    35,055,000
    
    
    
    4.92
    %Over five through ten years
    
    
    45,890,000
    
    
    
    5.24Over ten years
    
    
    0
    
    
    NA80,945,000
    
    
    
    5.10Obligations of states and political subdivisionsOne year or less
    
    
    1,517,000
    
    
    
    6.36Over one through five years
    
    
    10,083,000
    
    
    
    6.92Over five through ten years
    
    
    11,784,000
    
    
    
    6.38Over ten years
    
    
    41,946,000
    
    
    
    6.3765,330,000
    
    
    
    6.45Mortgage-backed securities
    
    
    54,619,000
    
    
    
    5.12Mutual fund
    
    
    1,109,000
    
    
    
    4.25$
    202,003,000
    
    
    
    5.53
    %
 
 (1) Yields on tax-exempt securities are computed on a fully taxable-equivalent basis. F-11




---



##### Table of Contents



Source of Funds
    F-12




---



##### Table of Contents



RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006
 Summary
  F-13




---



##### Table of Contents



2007
    
    2006Return on average total assets
    
    
    0.43
    %
    
    
    1.01
    %Return on average equity
    
    
    5.10
    
    
    
    12.19Dividend payout ratio
    
    
    52.16
    
    
    
    20.34Average equity to average assets
    
    
    8.44
    
    
    
    8.31
 Net Interest Income
      F-14




---



##### Table of Contents



Years ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateTaxable securities
    
    $
    141,289
    
    
    $
    7,243
    
    
    
    5.13
    %
    
    $
    128,382
    
    
    $
    6,557
    
    
    
    5.11
    %
    
    $
    114,097
    
    
    $
    5,588
    
    
    
    4.90
    %Tax-exempt
securities
    
    
    64,122
    
    
    
    4,013
    
    
    
    6.26
    
    
    
    61,949
    
    
    
    3,930
    
    
    
    6.34
    
    
    
    58,005
    
    
    
    3,703
    
    
    
    6.38Total securities
    
    
    205,411
    
    
    
    11,256
    
    
    
    5.48
    
    
    
    190,331
    
    
    
    10,487
    
    
    
    5.51
    
    
    
    172,102
    
    
    
    9,291
    
    
    
    5.40Loans and leases
    
    
    1,765,465
    
    
    
    133,685
    
    
    
    7.57
    
    
    
    1,660,284
    
    
    
    127,470
    
    
    
    7.68
    
    
    
    1,432,609
    
    
    
    93,666
    
    
    
    6.54Short-term
investments
    
    
    510
    
    
    
    20
    
    
    
    3.92
    
    
    
    320
    
    
    
    12
    
    
    
    3.75
    
    
    
    582
    
    
    
    14
    
    
    
    2.41Federal funds sold
    
    
    8,239
    
    
    
    420
    
    
    
    5.10
    
    
    
    9,745
    
    
    
    482
    
    
    
    4.95
    
    
    
    8,156
    
    
    
    266
    
    
    
    3.26Total earning
assets
    
    
    1,979,625
    
    
    
    145,381
    
    
    
    7.34
    
    
    
    1,860,680
    
    
    
    138,451
    
    
    
    7.44
    
    
    
    1,613,449
    
    
    
    103,237
    
    
    
    6.40Allowance for loan
and lease losses
    
    
    (23,157
    )
    
    
    
    
    
    
    
    
    
    
    (21,464
    )
    
    
    
    
    
    
    
    
    
    
    (19,048
    )Cash and due
from banks
    
    
    33,099
    
    
    
    
    
    
    
    
    
    
    
    38,298
    
    
    
    
    
    
    
    
    
    
    
    36,827Other non-earning
assets
    
    
    94,279
    
    
    
    
    
    
    
    
    
    
    
    82,419
    
    
    
    
    
    
    
    
    
    
    
    70,769Total assets
    
    $
    2,083,846
    
    
    
    
    
    
    
    
    
    
    $
    1,959,933
    
    
    
    
    
    
    
    
    
    
    $
    1,701,997Interest-bearing
demand deposits
    
    $
    37,143
    
    
    $
    1,047
    
    
    
    2.82
    %
    
    $
    36,530
    
    
    $
    1,069
    
    
    
    2.93
    %
    
    $
    36,319
    
    
    $
    707
    
    
    
    1.95
    %Savings deposits
    
    
    86,009
    
    
    
    2,977
    
    
    
    3.46
    
    
    
    93,046
    
    
    
    3,328
    
    
    
    3.58
    
    
    
    113,945
    
    
    
    2,934
    
    
    
    2.57Money market
accounts
    
    
    11,706
    
    
    
    359
    
    
    
    3.07
    
    
    
    10,326
    
    
    
    325
    
    
    
    3.15
    
    
    
    9,478
    
    
    
    211
    
    
    
    2.23Time deposits
    
    
    1,385,260
    
    
    
    71,838
    
    
    
    5.19
    
    
    
    1,289,777
    
    
    
    60,033
    
    
    
    4.65
    
    
    
    1,036,457
    
    
    
    35,032
    
    
    
    3.38Total interest-
bearing deposits
    
    
    1,520,118
    
    
    
    76,221
    
    
    
    5.01
    
    
    
    1,429,679
    
    
    
    64,755
    
    
    
    4.53
    
    
    
    1,196,199
    
    
    
    38,884
    
    
    
    3.25Short-term
borrowings
    
    
    93,307
    
    
    
    3,493
    
    
    
    3.74
    
    
    
    75,885
    
    
    
    2,867
    
    
    
    3.78
    
    
    
    66,814
    
    
    
    1,795
    
    
    
    2.69Federal Home Loan
Bank advances
    
    
    118,904
    
    
    
    6,100
    
    
    
    5.13
    
    
    
    121,932
    
    
    
    5,393
    
    
    
    4.42
    
    
    
    131,137
    
    
    
    4,200
    
    
    
    3.20Long-term
borrowings
    
    
    36,610
    
    
    
    2,810
    
    
    
    7.68
    
    
    
    35,895
    
    
    
    2,658
    
    
    
    7.40
    
    
    
    35,014
    
    
    
    1,959
    
    
    
    5.59Total interest-
bearing liabilities
    
    
    1,768,939
    
    
    
    88,624
    
    
    
    5.01
    
    
    
    1,663,391
    
    
    
    75,673
    
    
    
    4.55
    
    
    
    1,429,164
    
    
    
    46,838
    
    
    
    3.28Demand deposits
    
    
    115,172
    
    
    
    
    
    
    
    
    
    
    
    115,390
    
    
    
    
    
    
    
    
    
    
    
    111,892Other liabilities
    
    
    23,838
    
    
    
    
    
    
    
    
    
    
    
    18,371
    
    
    
    
    
    
    
    
    
    
    
    12,352Total liabilities
    
    
    1,907,949
    
    
    
    
    
    
    
    
    
    
    
    1,797,152
    
    
    
    
    
    
    
    
    
    
    
    1,553,408Average equity
    
    
    175,897
    
    
    
    
    
    
    
    
    
    
    
    162,781
    
    
    
    
    
    
    
    
    
    
    
    148,589Total liabilities
and equity
    
    $
    2,083,846
    
    
    
    
    
    
    
    
    
    
    $
    1,959,933
    
    
    
    
    
    
    
    
    
    
    $
    1,701,997Net interest
income
    
    
    
    
    
    $
    56,757
    
    
    
    
    
    
    
    
    
    
    $
    62,778
    
    
    
    
    
    
    
    
    
    
    $
    56,399Rate spread
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %Net interest
margin
    
    
    
    
    
    
    
    
    
    
    2.87
    %
    
    
    
    
    
    
    
    
    
    
    3.37
    %
    
    
    
    
    
    
    
    
    
    
    3.50
    %
 F-15




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##### Table of Contents



Years ended December 31,2007 over 2006
    
    
    2006 over 2005Total
    
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    RateIncrease (decrease) in interest incomeTaxable securities
    
    $
    686,000
    
    
    $
    662,000
    
    
    $
    24,000
    
    
    $
    969,000
    
    
    $
    722,000
    
    
    $
    247,000Tax exempt securities
    
    
    83,000
    
    
    
    136,000
    
    
    
    (53,000
    )
    
    
    227,000
    
    
    
    250,000
    
    
    
    (23,000
    )Loans
    
    
    6,215,000
    
    
    
    7,984,000
    
    
    
    (1,769,000
    )
    
    
    33,804,000
    
    
    
    16,123,000
    
    
    
    17,681,000Short term investments
    
    
    8,000
    
    
    
    7,000
    
    
    
    1,000
    
    
    
    (2,000
    )
    
    
    (8,000
    )
    
    
    6,000Federal funds sold
    
    
    (62,000
    )
    
    
    (76,000
    )
    
    
    14,000
    
    
    
    216,000
    
    
    
    59,000
    
    
    
    157,000Net change in tax-equivalent
income
    
    
    6,930,000
    
    
    
    8,713,000
    
    
    
    (1,783,000
    )
    
    
    35,214,000
    
    
    
    17,146,000
    
    
    
    18,068,000Increase (decrease) in interest expenseInterest-bearing demand deposits
    
    
    (22,000
    )
    
    
    18,000
    
    
    
    (40,000
    )
    
    
    362,000
    
    
    
    4,000
    
    
    
    358,000Savings deposits
    
    
    (351,000
    )
    
    
    (246,000
    )
    
    
    (105,000
    )
    
    
    394,000
    
    
    
    (605,000
    )
    
    
    999,000Money market accounts
    
    
    34,000
    
    
    
    43,000
    
    
    
    (9,000
    )
    
    
    114,000
    
    
    
    20,000
    
    
    
    94,000Time deposits
    
    
    11,805,000
    
    
    
    4,644,000
    
    
    
    7,161,000
    
    
    
    25,001,000
    
    
    
    9,832,000
    
    
    
    15,169,000Short term borrowings
    
    
    626,000
    
    
    
    652,000
    
    
    
    (26,000
    )
    
    
    1,072,000
    
    
    
    268,000
    
    
    
    804,000Federal Home Loan Bank
advances
    
    
    707,000
    
    
    
    (137,000
    )
    
    
    844,000
    
    
    
    1,193,000
    
    
    
    (312,000
    )
    
    
    1,505,000Long term borrowings
    
    
    152,000
    
    
    
    53,000
    
    
    
    99,000
    
    
    
    699,000
    
    
    
    50,000
    
    
    
    649,000Net change in interest
expense
    
    
    12,951,000
    
    
    
    5,027,000
    
    
    
    7,924,000
    
    
    
    28,835,000
    
    
    
    9,257,000
    
    
    
    19,578,000Net change in tax-equivalent
net interest income
    
    $
    (6,021,000
    )
    
    $
    3,686,000
    
    
    $
    (9,707,000
    )
    
    $
    6,379,000
    
    
    $
    7,889,000
    
    
    $
    (1,510,000
    )
     F-16




---



##### Table of Contents



Provision for Loan and Lease Losses
    F-17




---



##### Table of Contents



Noninterest Income
  Noninterest Expense
  Federal Income Tax Expense
  RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 Summary
   2006
    
    2005Return on average total assets
    
    
    1.01
    %
    
    
    1.05
    %Return on average equity
    
    
    12.19
    
    
    
    12.05Dividend payout ratio
    
    
    20.34
    
    
    
    17.79Average equity to average assets
    
    
    8.31
    
    
    
    8.73
 F-18




---



##### Table of Contents



Net Interest Income
      F-19




---



##### Table of Contents



Provision for Loan and Lease Losses
    F-20




---



##### Table of Contents



Noninterest Income
  Noninterest Expense
  Federal Income Tax Expense
  CAPITAL RESOURCES
    F-21




---



##### Table of Contents



LIQUIDITY
      F-22




---



##### Table of Contents



One Year or Less
    
    One to Three Years
    
    Three to Five Years
    
    Over Five Years
    
    TotalDeposits without a stated maturity
    
    $
    270,169,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    270,169,000Certificates of deposits
    
    
    1,030,178,000
    
    
    
    259,723,000
    
    
    
    31,111,000
    
    
    
    0
    
    
    
    1,321,012,000Short term borrowings
    
    
    111,265,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    111,265,000Federal Home Loan Bank advances
    
    
    80,000,000
    
    
    
    90,000,000
    
    
    
    10,000,000
    
    
    
    0
    
    
    
    180,000,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    4,013,000
    
    
    
    4,013,000Operating leases
    
    
    319,000
    
    
    
    583,000
    
    
    
    346,000
    
    
    
    0
    
    
    
    1,248,000
   December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Commercial unused lines of credit
    
    $
    377,493,000
    
    
    $
    345,195,000
    
    
    $
    303,115,000Unused lines of credit secured by
1-4 family residential
properties
    
    
    33,083,000
    
    
    
    29,314,000
    
    
    
    27,830,000Credit card unused lines of credit
    
    
    9,035,000
    
    
    
    8,510,000
    
    
    
    7,971,000Other consumer unused lines of credit
    
    
    6,910,000
    
    
    
    7,197,000
    
    
    
    10,791,000Commitments to make loans
    
    
    66,196,000
    
    
    
    60,850,000
    
    
    
    83,280,000Standby letters of credit
    
    
    81,292,000
    
    
    
    73,241,000
    
    
    
    59,058,000Total
    
    $
    574,009,000
    
    
    $
    524,307,000
    
    
    $
    492,045,000
  F-23




---



##### Table of Contents



MARKET RISK ANALYSIS
    F-24




---



##### Table of Contents



Within
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Commercial loans (1)
    
    $
    919,282
    
    
    $
    90,697
    
    
    $
    596,701
    
    
    $
    49,656
    
    
    $
    1,656,336Leases
    
    
    9
    
    
    
    172
    
    
    
    2,684
    
    
    
    0
    
    
    
    2,865Residential real estate loans
    
    
    61,695
    
    
    
    7,203
    
    
    
    52,552
    
    
    
    14,067
    
    
    
    135,517Consumer loans
    
    
    1,882
    
    
    
    85
    
    
    
    2,589
    
    
    
    606
    
    
    
    5,162Securities (2)
    
    
    10,849
    
    
    
    1,516
    
    
    
    57,488
    
    
    
    141,883
    
    
    
    211,736Short term investments
    
    
    292
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    292Allowance for loan and lease losses
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (25,814
    )Other assets
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    135,309Total assets
    
    
    994,009
    
    
    
    99,673
    
    
    
    712,014
    
    
    
    206,212
    
    
    
    2,121,403Liabilities:Interest-bearing checking
    
    
    44,491
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    44,491Savings
    
    
    80,750
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    80,750Money market accounts
    
    
    11,872
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    11,872Time deposits under $100,000
    
    
    36,326
    
    
    
    69,572
    
    
    
    47,480
    
    
    
    0
    
    
    
    153,378Time deposits $100,000 and over
    
    
    356,661
    
    
    
    567,619
    
    
    
    243,354
    
    
    
    0
    
    
    
    1,167,634Short term borrowings
    
    
    111,265
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    111,265Federal Home Loan Bank advances
    
    
    20,000
    
    
    
    60,000
    
    
    
    100,000
    
    
    
    0
    
    
    
    180,000Long term borrowings
    
    
    37,003
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    37,003Noninterest-bearing checking
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    133,056Other liabilities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    23,799Total liabilities
    
    
    698,368
    
    
    
    697,191
    
    
    
    390,834
    
    
    
    0
    
    
    
    1,943,248Shareholders equity
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    178,155Total sources of funds
    
    
    698,368
    
    
    
    697,191
    
    
    
    390,834
    
    
    
    0
    
    
    
    2,121,403Net asset (liability) GAP
    
    $
    295,641
    
    
    $
    (597,518
    )
    
    $
    321,180
    
    
    $
    206,212Cumulative GAP
    
    $
    295,641
    
    
    $
    (301,877
    )
    
    $
    19,303
    
    
    $
    225,515Percent of cumulative GAP to
total assets
    
    
    13.9
    %
    
    
    (14.2
    )%
    
    
    0.9
    %
    
    
    10.6
    %
 
 (1)
    
    Floating rate loans that are currently at interest rate ceilings or interest rate
floors are treated as fixed rate loans and are reflected using maturity date and not repricing
frequency.(2)
    
    Mortgage-backed securities are categorized by expected maturities based upon
prepayment trends as of December 31, 2007.  F-25




---



##### Table of Contents



Dollar Change In
    
    Percent Change InInterest Rate Scenario
    
    Net Interest Income
    
    Net Interest IncomeInterest rates down 200 basis points
    
    $
    2,620,000
    
    
    
    4.6
    %Interest rates down 100 basis points
    
    
    3,108,000
    
    
    
    5.4No change in interest rates
    
    
    3,386,000
    
    
    
    5.9Interest rates up 100 basis points
    
    
    4,979,000
    
    
    
    8.7Interest rates up 200 basis points
    
    
    6,529,000
    
    
    
    11.4
  F-26




---



##### Table of Contents



Internal Control  Integrated Framework
 /s/ BDO Seidman, LLPBDO Seidman, LLP
 
 F-27




---



##### Table of Contents



/s/ Crowe Chizek and Company LLCCrowe Chizek and Company LLC
 
 F-28




---



##### Table of Contents



Internal Control  Integrated Framework
      /s/ BDO Seidman, LLPBDO Seidman, LLP
 
 F-29




---



##### Table of Contents



Internal Control  Integrated Framework
   /s/ Michael H. PriceMichael H. PriceChairman of the Board, President and Chief Executive Officer/s/ Charles E. ChristmasCharles E. ChristmasSenior Vice President  Chief Financial Officer and Treasurer
 F-30




---



##### Table of Contents



2007
    
    
    2006ASSETSCash and due from banks
    
    $
    29,138,000
    
    
    $
    51,098,000Short term investments
    
    
    292,000
    
    
    
    282,000Total cash and cash equivalents
    
    
    29,430,000
    
    
    
    51,380,000Securities available for sale
    
    
    136,673,000
    
    
    
    130,967,000Securities held to maturity (fair value of $66,440,000 at
December 31, 2007 and $65,025,000 at December 31, 2006)
    
    
    65,330,000
    
    
    
    63,943,000Federal Home Loan Bank stock
    
    
    9,733,000
    
    
    
    7,509,000Loans and leases
    
    
    1,799,880,000
    
    
    
    1,745,478,000Allowance for loan and lease losses
    
    
    (25,814,000
    )
    
    
    (21,411,000
    )Loans and leases, net
    
    
    1,774,066,000
    
    
    
    1,724,067,000Premises and equipment, net
    
    
    34,351,000
    
    
    
    33,539,000Bank owned life insurance policies
    
    
    39,118,000
    
    
    
    30,858,000Accrued interest receivable
    
    
    9,957,000
    
    
    
    10,287,000Other assets
    
    
    22,745,000
    
    
    
    14,718,000Total assets
    
    $
    2,121,403,000
    
    
    $
    2,067,268,000LIABILITIES AND SHAREHOLDERS EQUITYDepositsNoninterest-bearing
    
    $
    133,056,000
    
    
    $
    133,197,000Interest-bearing
    
    
    1,458,125,000
    
    
    
    1,513,706,000Total
    
    
    1,591,181,000
    
    
    
    1,646,903,000Securities sold under agreements to repurchase
    
    
    97,465,000
    
    
    
    85,472,000Federal funds purchased
    
    
    13,800,000
    
    
    
    9,800,000Federal Home Loan Bank advances
    
    
    180,000,000
    
    
    
    95,000,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    4,013,000
    
    
    
    3,316,000Accrued interest and other liabilities
    
    
    23,799,000
    
    
    
    21,872,000Total liabilities
    
    
    1,943,248,000
    
    
    
    1,895,353,000Shareholders equityPreferred stock, no par value; 1,000,000 shares
authorized, none issued
    
    
    0
    
    
    
    0Common stock, no par value; 20,000,000 shares
authorized; 8,527,197 and 8,022,221 shares issued
and outstanding at December 31, 2007 and 2006
    
    
    172,938,000
    
    
    
    161,223,000Retained earnings
    
    
    4,948,000
    
    
    
    11,794,000Accumulated other comprehensive income (loss)
    
    
    269,000
    
    
    
    (1,102,000
    )Total shareholders equity
    
    
    178,155,000
    
    
    
    171,915,000Total liabilities and shareholders equity
    
    $
    2,121,403,000
    
    
    $
    2,067,268,000
  F-31




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Interest incomeLoans and leases, including fees
    
    $
    133,685,000
    
    
    $
    127,470,000
    
    
    $
    93,666,000Securities, taxable
    
    
    7,243,000
    
    
    
    6,557,000
    
    
    
    5,588,000Securities, tax-exempt
    
    
    2,813,000
    
    
    
    2,739,000
    
    
    
    2,596,000Federal funds sold
    
    
    420,000
    
    
    
    482,000
    
    
    
    266,000Short-term investments
    
    
    20,000
    
    
    
    12,000
    
    
    
    14,000Total interest income
    
    
    144,181,000
    
    
    
    137,260,000
    
    
    
    102,130,000Interest expenseDeposits
    
    
    76,221,000
    
    
    
    64,755,000
    
    
    
    38,884,000Short-term borrowings
    
    
    3,493,000
    
    
    
    2,867,000
    
    
    
    1,795,000Federal Home Loan Bank advances
    
    
    6,100,000
    
    
    
    5,393,000
    
    
    
    4,200,000Long-term borrowings
    
    
    2,810,000
    
    
    
    2,658,000
    
    
    
    1,959,000Total interest expense
    
    
    88,624,000
    
    
    
    75,673,000
    
    
    
    46,838,000Net interest income
    
    
    55,557,000
    
    
    
    61,587,000
    
    
    
    55,292,000Provision for loan and lease losses
    
    
    11,070,000
    
    
    
    5,775,000
    
    
    
    3,790,000Net interest income after provision for loan and lease losses
    
    
    44,487,000
    
    
    
    55,812,000
    
    
    
    51,502,000Noninterest incomeService charges on accounts
    
    
    1,610,000
    
    
    
    1,386,000
    
    
    
    1,391,000Earnings on bank owned life insurance policies
    
    
    1,252,000
    
    
    
    1,165,000
    
    
    
    997,000Credit and debit card fees
    
    
    668,000
    
    
    
    557,000
    
    
    
    457,000Letter of credit fees
    
    
    613,000
    
    
    
    443,000
    
    
    
    422,000Mortgage banking activities
    
    
    464,000
    
    
    
    553,000
    
    
    
    634,000Net gain on sales of commercial loans
    
    
    0
    
    
    
    29,000
    
    
    
    84,000Other income
    
    
    1,263,000
    
    
    
    1,128,000
    
    
    
    1,676,000Total noninterest income
    
    
    5,870,000
    
    
    
    5,261,000
    
    
    
    5,661,000Noninterest expenseSalaries and benefits
    
    
    22,876,000
    
    
    
    18,983,000
    
    
    
    18,635,000Occupancy
    
    
    3,300,000
    
    
    
    3,136,000
    
    
    
    2,641,000Furniture and equipment rent, depreciation and maintenance
    
    
    2,063,000
    
    
    
    2,050,000
    
    
    
    1,667,000Data processing
    
    
    2,017,000
    
    
    
    1,657,000
    
    
    
    1,186,000Nonperforming asset costs
    
    
    1,099,000
    
    
    
    430,000
    
    
    
    723,000Advertising
    
    
    585,000
    
    
    
    600,000
    
    
    
    554,000Other expense
    
    
    6,416,000
    
    
    
    5,406,000
    
    
    
    5,711,000Total noninterest expenses
    
    
    38,356,000
    
    
    
    32,262,000
    
    
    
    31,117,000Income before federal income tax expense
    
    
    12,001,000
    
    
    
    28,811,000
    
    
    
    26,046,000Federal income tax expense
    
    
    3,035,000
    
    
    
    8,964,000
    
    
    
    8,145,000Net income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000Earnings per share:Basic
    
    $
    1.06
    
    
    $
    2.36
    
    
    $
    2.14Diluted
    
    $
    1.06
    
    
    $
    2.33
    
    
    $
    2.10
  F-32




---



##### Table of Contents



Accumulated Other
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    EquityBalances, January 1, 2005
    
    $
    131,010,000
    
    
    $
    10,475,000
    
    
    $
    132,000
    
    
    $
    141,617,000Payment of 5% stock dividend
    
    
    17,187,000
    
    
    
    (17,191,000
    )
    
    
    
    
    
    
    (4,000
    )Employee stock purchase plan, 2,615 shares
    
    
    97,000
    
    
    
    
    
    
    
    
    
    
    
    97,000Dividend reinvestment plan, 4,303 shares
    
    
    159,000
    
    
    
    
    
    
    
    
    
    
    
    159,000Stock option exercises, 43,973 shares
    
    
    396,000
    
    
    
    
    
    
    
    
    
    
    
    396,000Stock tendered for stock option
exercises, 8,445 shares
    
    
    (316,000
    )
    
    
    
    
    
    
    
    
    
    
    (316,000
    )Cash dividends ($0.39 per share)
    
    
    
    
    
    
    (3,185,000
    )
    
    
    
    
    
    
    (3,185,000
    )Comprehensive income:Net income
    
    
    
    
    
    
    17,901,000
    
    
    
    
    
    
    
    17,901,000Change in net unrealized gain (loss) on
securities available for sale, net of
reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    (1,540,000
    )
    
    
    (1,540,000
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,361,000Balances, December 31, 2005
    
    
    148,533,000
    
    
    
    8,000,000
    
    
    
    (1,408,000
    )
    
    
    155,125,000Payment of 5% stock dividend
    
    
    12,014,000
    
    
    
    (12,018,000
    )
    
    
    
    
    
    
    (4,000
    )Employee stock purchase plan, 2,912 shares
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    107,000Dividend reinvestment plan, 2,657 shares
    
    
    98,000
    
    
    
    
    
    
    
    
    
    
    
    98,000Stock option exercises, 64,971 shares
    
    
    814,000
    
    
    
    
    
    
    
    
    
    
    
    814,000Stock tendered for stock option
exercises, 15,685 shares
    
    
    (585,000
    )
    
    
    
    
    
    
    
    
    
    
    (585,000
    )Cash dividends ($0.48 per share)
    
    
    
    
    
    
    (4,035,000
    )
    
    
    
    
    
    
    (4,035,000
    )Stock-based compensation expense
    
    
    242,000
    
    
    
    
    
    
    
    
    
    
    
    242,000Comprehensive income:Net income
    
    
    
    
    
    
    19,847,000
    
    
    
    
    
    
    
    19,847,000Change in net unrealized loss on
securities available for sale, net of
reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    306,000
    
    
    
    306,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,153,000Balances, December 31, 2006
    
    
    161,223,000
    
    
    
    11,794,000
    
    
    
    (1,102,000
    )
    
    
    171,915,000
  F-33




---



##### Table of Contents



Accumulated Other
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    EquityBalances, December 31, 2006
    
    $
    161,223,000
    
    
    $
    11,794,000
    
    
    $
    (1,102,000
    )
    
    $
    171,915,000Payment of 5% stock dividend
    
    
    11,131,000
    
    
    
    (11,135,000
    )
    
    
    
    
    
    
    (4,000
    )Employee stock purchase plan, 3,966 shares
    
    
    91,000
    
    
    
    
    
    
    
    
    
    
    
    91,000Dividend reinvestment plan, 3,137 shares
    
    
    76,000
    
    
    
    
    
    
    
    
    
    
    
    76,000Stock option exercises, 52,117 shares
    
    
    643,000
    
    
    
    
    
    
    
    
    
    
    
    643,000Stock tendered for stock option
exercises, 18,291 shares
    
    
    (587,000
    )
    
    
    
    
    
    
    
    
    
    
    (587,000
    )Cash dividends ($0.55 per share)
    
    
    
    
    
    
    (4,677,000
    )
    
    
    
    
    
    
    (4,677,000
    )Stock-based compensation expense
    
    
    361,000
    
    
    
    
    
    
    
    
    
    
    
    361,000Comprehensive income:Net income
    
    
    
    
    
    
    8,966,000
    
    
    
    
    
    
    
    8,966,000Change in net unrealized gain/(loss) on
securities available for sale, net of
reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    1,371,000
    
    
    
    1,371,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,337,000Balances, December 31, 2007
    
    
    172,938,000
    
    
    
    4,948,000
    
    
    
    269,000
    
    
    
    178,155,000
  F-34




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000Adjustments
to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    3,080,000
    
    
    
    2,887,000
    
    
    
    2,555,000Provision for loan and lease losses
    
    
    11,070,000
    
    
    
    5,775,000
    
    
    
    3,790,000Provision for deferred income taxes
    
    
    (2,103,000
    )
    
    
    (474,000
    )
    
    
    (979,000
    )Stock-based compensation expense
    
    
    361,000
    
    
    
    242,000
    
    
    
    0Federal Home Loan Bank stock dividends
    
    
    0
    
    
    
    0
    
    
    
    (146,000
    )Net gain on sales of commercial loans
    
    
    0
    
    
    
    (29,000
    )
    
    
    (84,000
    )Proceeds from sales of mortgage loans held for sale
    
    
    32,911,000
    
    
    
    18,133,000
    
    
    
    22,121,000Origination of mortgage loans held for sale
    
    
    (33,408,000
    )
    
    
    (18,766,000
    )
    
    
    (22,417,000
    )Net gain on sales of mortgage loans
    
    
    (432,000
    )
    
    
    (231,000
    )
    
    
    (206,000
    )Earnings on bank owned life insurance policies
    
    
    (1,252,000
    )
    
    
    (1,165,000
    )
    
    
    (997,000
    )Net change in:Accrued interest receivable
    
    
    330,000
    
    
    
    (2,013,000
    )
    
    
    (2,630,000
    )Other assets
    
    
    (736,000
    )
    
    
    (595,000
    )
    
    
    (2,000
    )Accrued interest and other liabilities
    
    
    1,927,000
    
    
    
    5,277,000
    
    
    
    7,190,000Net cash from operating activities
    
    
    20,714,000
    
    
    
    28,888,000
    
    
    
    26,096,000Cash flows from investing activitiesPurchases of:Securities available for sale
    
    
    (15,406,000
    )
    
    
    (24,886,000
    )
    
    
    (38,217,000
    )Securities held to maturity
    
    
    (4,658,000
    )
    
    
    (4,567,000
    )
    
    
    (10,065,000
    )Federal Home Loan Bank stock
    
    
    (2,224,000
    )
    
    
    0
    
    
    
    (943,000
    )Proceeds from:Maturities, calls and repayments of
securities available for sale
    
    
    11,969,000
    
    
    
    7,423,000
    
    
    
    16,686,000Maturities, calls and repayments of
securities held to maturity
    
    
    3,221,000
    
    
    
    1,330,000
    
    
    
    1,586,000Redemption of Federal Home Loan Bank stock
    
    
    0
    
    
    
    378,000
    
    
    
    0Loan and lease originations and payments, net
    
    
    (66,555,000
    )
    
    
    (189,793,000
    )
    
    
    (246,740,000
    )Purchases of premises and equipment, net
    
    
    (3,513,000
    )
    
    
    (5,911,000
    )
    
    
    (7,677,000
    )Purchases of bank owned life insurance policies
    
    
    (7,008,000
    )
    
    
    (1,621,000
    )
    
    
    (3,324,000
    )Net cash for investing activities
    
    
    (84,174,000
    )
    
    
    (217,647,000
    )
    
    
    (288,694,000
    )Cash flows from financing activitiesNet increase (decrease) in deposits
    
    
    (55,722,000
    )
    
    
    227,551,000
    
    
    
    260,171,000Net increase in securities sold under agreements
to repurchase
    
    
    11,993,000
    
    
    
    13,271,000
    
    
    
    15,884,000Net increase (decrease) in federal funds purchased
    
    
    4,000,000
    
    
    
    200,000
    
    
    
    (5,400,000
    )Proceeds from Federal Home Loan Bank advances
    
    
    175,000,000
    
    
    
    80,000,000
    
    
    
    75,000,000Pay-off of Federal Home Loan Bank advances
    
    
    (90,000,000
    )
    
    
    (115,000,000
    )
    
    
    (65,000,000
    )Net increase in other borrowed money
    
    
    697,000
    
    
    
    969,000
    
    
    
    738,000Cash paid in lieu of fractional shares on stock dividend
    
    
    (4,000
    )
    
    
    (4,000
    )
    
    
    (4,000
    )Employee stock purchase plan
    
    
    91,000
    
    
    
    107,000
    
    
    
    97,000Dividend reinvestment plan
    
    
    76,000
    
    
    
    98,000
    
    
    
    159,000Stock option exercises, net
    
    
    56,000
    
    
    
    229,000
    
    
    
    80,000Cash dividends
    
    
    (4,677,000
    )
    
    
    (4,035,000
    )
    
    
    (3,185,000
    )Net cash from financing activities
    
    
    41,510,000
    
    
    
    203,386,000
    
    
    
    278,540,000
  F-35




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Net change in cash and cash equivalents
    
    
    (21,950,000
    )
    
    
    14,627,000
    
    
    
    15,942,000Cash and cash equivalents at beginning of period
    
    
    51,380,000
    
    
    
    36,753,000
    
    
    
    20,811,000Cash and cash equivalents at end of period
    
    $
    29,430,000
    
    
    $
    51,380,000
    
    
    $
    36,753,000Supplemental disclosures of cash flow informationCash paid during the year for:Interest
    
    $
    87,707,000
    
    
    $
    67,925,000
    
    
    $
    40,671,000Federal income taxes
    
    
    5,730,000
    
    
    
    10,875,000
    
    
    
    8,657,000Transfers from loans and leases to foreclosed assets
    
    
    6,415,000
    
    
    
    2,129,000
    
    
    
    1,556,000
  F-36




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Consolidation of Variable Interest Entities
 Nature of Operations
      F-37




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
 Cash Flow Reporting
 Securities
   Loans and Leases
    F-38




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loans Held for Sale
 Allowance for Loan and Lease Losses
  Transfers of Financial Assets
 Premises and Equipment
 Long-lived Assets
 Foreclosed Assets:
  F-39




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Bank Owned Life Insurance:
 Repurchase Agreements
 Financial Instruments and Loan Commitments
 Stock Compensation: Share-Based Payment,
  Accounting for
Stock-Based Compensation
 Net income as reported
    
    $
    17,901,000Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    861,000Pro forma net income
    
    
    17,040,000Basic earnings per share as reported
    
    $
    2.14Pro forma basic earnings per share
    
    
    2.03Diluted earnings per share as reported
    
    $
    2.10Pro forma diluted earnings per share
    
    
    1.99
 Income Taxes
  F-40




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Accounting for Uncertainty in Income Taxes
 Fair Values of Financial Instruments
 Earnings Per Share
 Comprehensive Income
 Contingencies:
 Reclassifications
 Operating Segment
  F-41




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Adoption of New Accounting Standards Business Combinations
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
  F-42




---



##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2007U.S. Government agency
debt obligations
    
    $
    80,129,000
    
    
    $
    860,000
    
    
    $
    (44,000
    )
    
    $
    80,945,000Mortgage-backed securities
    
    
    55,003,000
    
    
    
    193,000
    
    
    
    (577,000
    )
    
    
    54,619,000Mutual fund
    
    
    1,127,000
    
    
    
    0
    
    
    
    (18,000
    )
    
    
    1,109,000$
    136,259,000
    
    
    $
    1,053,000
    
    
    $
    (639,000
    )
    
    $
    136,673,0002006U.S. Government agency
debt obligations
    
    $
    77,544,000
    
    
    $
    197,000
    
    
    $
    (905,000
    )
    
    $
    76,836,000Mortgage-backed securities
    
    
    54,039,000
    
    
    
    80,000
    
    
    
    (1,036,000
    )
    
    
    53,083,000Mutual fund
    
    
    1,080,000
    
    
    
    0
    
    
    
    (32,000
    )
    
    
    1,048,000$
    132,663,000
    
    
    $
    277,000
    
    
    $
    (1,973,000
    )
    
    $
    130,967,000
  Gross
    
    
    GrossCarrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAmount
    
    
    Gains
    
    
    Losses
    
    
    Value2007Municipal general obligation bonds
    
    $
    57,668,000
    
    
    $
    1,084,000
    
    
    $
    (164,000
    )
    
    $
    58,588,000Municipal revenue bonds
    
    
    7,662,000
    
    
    
    198,000
    
    
    
    (8,000
    )
    
    
    7,852,000$
    65,330,000
    
    
    $
    1,282,000
    
    
    $
    (172,000
    )
    
    $
    66,440,0002006Municipal general obligation bonds
    
    $
    56,870,000
    
    
    $
    1,098,000
    
    
    $
    (197,000
    )
    
    $
    57,771,000Municipal revenue bonds
    
    
    7,073,000
    
    
    
    198,000
    
    
    
    (17,000
    )
    
    
    7,254,000$
    63,943,000
    
    
    $
    1,296,000
    
    
    $
    (214,000
    )
    
    $
    65,025,000
  F-43




---



##### Table of Contents



NOTE 2  SECURITIES
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2007U.S. Government agency
debt obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    7,953,000
    
    
    $
    (44,000
    )
    
    $
    7,953,000
    
    
    $
    (44,000
    )Mortgage-backed securities
    
    
    1,241,000
    
    
    
    (3,000
    )
    
    
    35,277,000
    
    
    
    (574,000
    )
    
    
    36,518,000
    
    
    
    (577,000
    )Mutual fund
    
    
    0
    
    
    
    0
    
    
    
    1,109,000
    
    
    
    (18,000
    )
    
    
    1,109,000
    
    
    
    (18,000
    )Municipal general
obligation bonds
    
    
    2,899,000
    
    
    
    (29,000
    )
    
    
    11,001,000
    
    
    
    (135,000
    )
    
    
    13,900,000
    
    
    
    (164,000
    )Municipal revenue bonds
    
    
    255,000
    
    
    
    (1,000
    )
    
    
    1,029,000
    
    
    
    (7,000
    )
    
    
    1,284,000
    
    
    
    (8,000
    )$
    4,395,000
    
    
    $
    (33,000
    )
    
    $
    56,369,000
    
    
    $
    (778,000
    )
    
    $
    60,764,000
    
    
    $
    (811,000
    )2006U.S. Government agency
debt obligations
    
    $
    1,971,000
    
    
    $
    (9,000
    )
    
    $
    53,939,000
    
    
    $
    (896,000
    )
    
    $
    55,910,000
    
    
    $
    (905,000
    )Mortgage-backed securities
    
    
    1,831,000
    
    
    
    (12,000
    )
    
    
    40,784,000
    
    
    
    (1,024,000
    )
    
    
    42,615,000
    
    
    
    (1,036,000
    )Mutual fund
    
    
    0
    
    
    
    0
    
    
    
    1,048,000
    
    
    
    (32,000
    )
    
    
    1,048,000
    
    
    
    (32,000
    )Municipal general
obligation bonds
    
    
    9,097,000
    
    
    
    (90,000
    )
    
    
    7,771,000
    
    
    
    (107,000
    )
    
    
    16,868,000
    
    
    
    (197,000
    )Municipal revenue bonds
    
    
    620,000
    
    
    
    (3,000
    )
    
    
    718,000
    
    
    
    (14,000
    )
    
    
    1,338,000
    
    
    
    (17,000
    )$
    13,519,000
    
    
    $
    (114,000
    )
    
    $
    104,260,000
    
    
    $
    (2,073,000
    )
    
    $
    117,779,000
    
    
    $
    (2,187,000
    )
    F-44




---



##### Table of Contents



NOTE 2  SECURITIES
   Held-to-Maturity
    
    
    Available-for-SaleWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Carrying
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    FairYield
    
    
    Amount
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    ValueDue in one year or less
    
    
    6.36
    %
    
    $
    1,517,000
    
    
    $
    1,526,000
    
    
    NA
        
    $
    0
    
    
    $
    0Due from one to five years
    
    
    6.92
    
    
    
    10,083,000
    
    
    
    10,443,000
    
    
    
    4.92
    %
    
    
    34,781,000
    
    
    
    35,055,000Due from five to ten years
    
    
    6.38
    
    
    
    11,784,000
    
    
    
    12,067,000
    
    
    
    5.24
    
    
    
    45,348,000
    
    
    
    45,890,000Due after ten years
    
    
    6.37
    
    
    
    41,946,000
    
    
    
    42,404,000
    
    
    NA
        
    
    0
    
    
    
    0Mortgage-backed
    
    NA
        
    
    0
    
    
    
    0
    
    
    
    5.12
    
    
    
    55,003,000
    
    
    
    54,619,000Mutual fund
    
    NA
        
    
    0
    
    
    
    0
    
    
    
    4.25
    
    
    
    1,127,000
    
    
    
    1,109,0006.45
    %
    
    $
    65,330,000
    
    
    $
    66,440,000
    
    
    
    5.10
    %
    
    $
    136,259,000
    
    
    $
    136,673,000
     F-45




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  PercentDecember 31, 2007
    
    
    December 31, 2006
    
    
    Increase/Balance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Real Estate:Construction and land
development
    
    $
    263,868,000
    
    
    
    14.7
    %
    
    $
    299,792,000
    
    
    
    17.1
    %
    
    
    (12.0
    )%Secured by 1 - 4
family properties
    
    
    135,517,000
    
    
    
    7.5
    
    
    
    131,829,000
    
    
    
    7.6
    
    
    
    2.8Secured by multi-
family properties
    
    
    51,951,000
    
    
    
    2.9
    
    
    
    39,941,000
    
    
    
    2.3
    
    
    
    30.1Secured by
nonresidential properties
    
    
    855,872,000
    
    
    
    47.6
    
    
    
    793,000,000
    
    
    
    45.4
    
    
    
    7.9Commercial
    
    
    484,645,000
    
    
    
    26.9
    
    
    
    471,272,000
    
    
    
    27.0
    
    
    
    2.8Leases
    
    
    2,865,000
    
    
    
    0.1
    
    
    
    1,388,000
    
    
    
    0.1
    
    
    
    106.4Consumer
    
    
    5,162,000
    
    
    
    0.3
    
    
    
    8,256,000
    
    
    
    0.5
    
    
    
    (37.5
    )$
    1,799,880,000
    
    
    
    100.0
    %
    
    $
    1,745,478,000
    
    
    
    100.0
    %
    
    
    3.1
    %
  2007
    
    
    2006
    
    
    2005Beginning balance
    
    $
    21,411,000
    
    
    $
    20,527,000
    
    
    $
    17,819,000Provision for loan and lease losses
    
    
    11,070,000
    
    
    
    5,775,000
    
    
    
    3,790,000Charge-offs
    
    
    (7,274,000
    )
    
    
    (5,389,000
    )
    
    
    (1,392,000
    )Recoveries
    
    
    607,000
    
    
    
    498,000
    
    
    
    310,000Ending balance
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000
  2007
    
    
    2006Year-end loans with no allocated allowance for loan and lease losses
    
    $
    10,842,000
    
    
    $
    558,000Year-end loans with allocated allowance for loan and lease losses
    
    
    14,052,000
    
    
    
    3,999,000$
    24,894,000
    
    
    $
    4,557,000Amount of the allowance for loan and lease losses allocated
    
    $
    3,237,000
    
    
    $
    1,149,000
   F-46




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
 2007
    
    
    2006Nonperforming loans and leases were as follows:Loans and leases past due 90 days or more still accruing interest
    
    $
    977,000
    
    
    $
    819,000Nonaccrual loans and leases
    
    
    28,832,000
    
    
    
    7,752,000$
    29,809,000
    
    
    $
    8,571,000
  2007
    
    2006Percentage of
    
    
    
    
    
    Percentage ofBalance
    
    Loan Portfolio
    
    Balance
    
    Loan PortfolioCommercial real estate loans to
lessors of non-residential
buildings
    
    $
    483,210,000
    
    
    
    26.8
    %
    
    $
    471,222,000
    
    
    
    27.0
    %
 NOTE 4  PREMISES AND EQUIPMENT, NET
  2007
    
    
    2006Land and improvements
    
    $
    8,534,000
    
    
    $
    8,021,000Buildings and leasehold improvements
    
    
    24,559,000
    
    
    
    23,036,000Furniture and equipment
    
    
    12,164,000
    
    
    
    10,773,00045,257,000
    
    
    
    41,830,000Less: accumulated depreciation
    
    
    10,906,000
    
    
    
    8,291,000$
    34,351,000
    
    
    $
    33,539,000
   2008
    
    $
    319,0002009
    
    
    329,0002010
    
    
    254,0002011
    
    
    178,0002012
    
    
    168,000Total
    
    $
    1,248,000
  F-47




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##### Table of Contents



NOTE 5  DEPOSITS
  PercentDecember 31, 2007
    
    
    December 31, 2006
    
    
    Increase/Balance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Noninterest-bearing
demand
    
    $
    133,056,000
    
    
    
    8.4
    %
    
    $
    133,197,000
    
    
    
    8.1
    %
    
    
    (0.1
    )%Interest-bearing
checking
    
    
    44,491,000
    
    
    
    2.8
    
    
    
    39,943,000
    
    
    
    2.4
    
    
    
    11.4Money market
    
    
    11,872,000
    
    
    
    0.7
    
    
    
    9,409,000
    
    
    
    0.6
    
    
    
    26.2Savings
    
    
    80,750,000
    
    
    
    5.1
    
    
    
    92,370,000
    
    
    
    5.6
    
    
    
    (12.6
    )Time, under $100,000
    
    
    52,675,000
    
    
    
    3.3
    
    
    
    47,840,000
    
    
    
    2.9
    
    
    
    10.1Time, $100,000 and
over
    
    
    343,296,000
    
    
    
    21.6
    
    
    
    310,326,000
    
    
    
    18.8
    
    
    
    10.6666,140,000
    
    
    
    41.9
    
    
    
    633,085,000
    
    
    
    38.4
    
    
    
    5.2Out-of-area time,
under $100,000
    
    
    100,703,000
    
    
    
    6.3
    
    
    
    82,330,000
    
    
    
    5.0
    
    
    
    22.3Out-of-area time,
$100,000 and over
    
    
    824,338,000
    
    
    
    51.8
    
    
    
    931,488,000
    
    
    
    56.6
    
    
    
    (11.5
    )925,041,000
    
    
    
    58.1
    
    
    
    1,013,818,000
    
    
    
    61.6
    
    
    
    (8.8
    )$
    1,591,181,000
    
    
    
    100.0
    %
    
    $
    1,646,903,000
    
    
    
    100.0
    %
    
    
    (3.4
    )%
   2007
    
    
    2006In one year or less
    
    $
    1,030,178,000
    
    
    $
    1,027,309,000In one to two years
    
    
    227,492,000
    
    
    
    258,692,000In two to three years
    
    
    32,231,000
    
    
    
    54,988,000In three to four years
    
    
    21,777,000
    
    
    
    11,111,000In four to five years
    
    
    9,334,000
    
    
    
    19,884,000$
    1,321,012,000
    
    
    $
    1,371,984,000
  2007
    
    
    2006Up to three months
    
    $
    356,661,000
    
    
    $
    351,745,000Three months to six months
    
    
    247,322,000
    
    
    
    246,357,000Six months to twelve months
    
    
    320,297,000
    
    
    
    341,461,000Over twelve months
    
    
    243,354,000
    
    
    
    302,251,000$
    1,167,634,000
    
    
    $
    1,241,814,000
  F-48




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##### Table of Contents



NOTE 6  SHORT-TERM BORROWINGS
  2007
    
    2006Outstanding balance at year-end
    
    $
    97,465,000
    
    
    $
    85,472,000Weighted average interest rate at year-end
    
    
    2.94
    %
    
    
    3.88
    %Average daily balance during the year
    
    
    88,685,000
    
    
    
    72,228,000Weighted average interest rate during the year
    
    
    3.67
    %
    
    
    3.71
    %Maximum month-end balance during the year
    
    
    102,881,000
    
    
    
    85,472,000
  NOTE 7  FEDERAL HOME LOAN BANK ADVANCES
  2007
    
    
    2006Maturities January 2008 through January 2012, fixed rates from
4.01% to 5.34%, averaging 4.71%
    
    $
    180,000,000
    
    
    $
    0Maturities January 2007 through May 2008, fixed rates from
3.70% to 5.69%, averaging 4.90%
    
    
    0
    
    
    
    95,000,000$
    180,000,000
    
    
    $
    95,000,000
   2008
    
    $
    80,000,0002009
    
    
    60,000,0002010
    
    
    30,000,0002011
    
    
    02012
    
    
    10,000,000
  F-49




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##### Table of Contents



NOTE 8  FEDERAL INCOME TAXES
  2007
    
    
    2006
    
    
    2005Current
    
    $
    5,138,000
    
    
    $
    9,438,000
    
    
    $
    9,124,000Deferred benefit
    
    
    (2,103,000
    )
    
    
    (474,000
    )
    
    
    (979,000
    )Tax expense
    
    $
    3,035,000
    
    
    $
    8,964,000
    
    
    $
    8,145,000
  2007
    
    
    2006
    
    
    2005Statutory rates
    
    $
    4,200,000
    
    
    $
    10,084,000
    
    
    $
    9,116,000Increase (decrease) fromTax-exempt interest
    
    
    (794,000
    )
    
    
    (795,000
    )
    
    
    (792,000
    )Bank owned life insurance
    
    
    (438,000
    )
    
    
    (408,000
    )
    
    
    (349,000
    )Other
    
    
    67,000
    
    
    
    83,000
    
    
    
    170,000Tax expense
    
    $
    3,035,000
    
    
    $
    8,964,000
    
    
    $
    8,145,000
  2007
    
    
    2006Deferred income tax assetsAllowance for loan and lease losses
    
    $
    9,035,000
    
    
    $
    7,494,000Unrealized loss on securities available for sale
    
    
    0
    
    
    
    594,000Deferred loan fees
    
    
    111,000
    
    
    
    231,000Deferred compensation
    
    
    1,404,000
    
    
    
    1,181,000Other
    
    
    835,000
    
    
    
    234,00011,385,000
    
    
    
    9,734,000Deferred income tax liabilitiesDepreciation
    
    
    1,006,000
    
    
    
    1,052,000Unrealized gain on securities available for sale
    
    
    145,000
    
    
    
    0Other
    
    
    713,000
    
    
    
    525,0001,864,000
    
    
    
    1,577,000Net deferred income tax asset
    
    $
    9,521,000
    
    
    $
    8,157,000
   F-50




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##### Table of Contents



NOTE 9  STOCK-BASED COMPENSATION
     2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested at beginning of year
    
    
    21,159
    
    
    $
    37.94
    
    
    
    0
    
    
    NAGranted
    
    
    44,450
    
    
    
    17.74
    
    
    
    21,159
    
    
    $
    37.94Vested
    
    
    0
    
    
    NA
    
    
    0
    
    
    NAForefeited
    
    
    (2,585
    )
    
    
    37.94
    
    
    
    0
    
    
    NANonvested at end of year
    
    
    63,024
    
    
    $
    23.69
    
    
    
    21,159
    
    
    $
    37.94
  F-51




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##### Table of Contents



NOTE 9  STOCK-BASED COMPENSATION
  2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
beginning of year
    
    
    288,962
    
    
    $
    24.07
    
    
    
    330,378
    
    
    $
    20.77
    
    
    
    325,872
    
    
    $
    16.92Granted
    
    
    54,099
    
    
    
    17.74
    
    
    
    25,867
    
    
    
    37.94
    
    
    
    49,863
    
    
    
    35.88Exercised
    
    
    (52,117
    )
    
    
    12.33
    
    
    
    (64,971
    )
    
    
    12.52
    
    
    
    (43,973
    )
    
    
    9.00Forfeited or expired
    
    
    (19,189
    )
    
    
    34.38
    
    
    
    (2,312
    )
    
    
    31.95
    
    
    
    (1,384
    )
    
    
    33.67Outstanding at
end of year
    
    
    271,755
    
    
    $
    24.34
    
    
    
    288,962
    
    
    $
    24.07
    
    
    
    330,378
    
    
    $
    20.77Options exercisable
at year-end
    
    
    181,544
    
    
    $
    23.68
    
    
    
    234,534
    
    
    $
    21.55
    
    
    
    283,029
    
    
    $
    19.21
   2007
    
    2006
    
    2005Risk-free interest rate
    
    
    3.40
    %
    
    
    4.60
    %
    
    
    4.12
    %Expected option life
    
    5 Years
        
    5 Years
        
    7 YearsExpected stock price volatility
    
    
    26
    %
    
    
    26
    %
    
    
    26
    %Dividend yield
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
  F-52




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##### Table of Contents



NOTE 9  STOCK-BASED COMPENSATION
  Outstanding
    
    
    ExercisableWeighted Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrices
    
    Number
    
    
    Life
    
    
    Price
    
    
    Number
    
    
    Price$8.00 - $12.00
    
    
    23,157
    
    
    2.6 Years
    
    $
    8.42
    
    
    
    23,157
    
    
    $
    8.42$12.01 - $16.00
    
    
    27,736
    
    
    3.8 Years
    
    
    12.89
    
    
    
    27,736
    
    
    
    12.89$16.01 - $20.00
    
    
    79,998
    
    
    6.2 Years
    
    
    17.22
    
    
    
    25,899
    
    
    
    16.14$20.01 - $24.00
    
    
    7,632
    
    
    4.8 Years
    
    
    20.18
    
    
    
    7,632
    
    
    
    20.18$24.01 - $28.00
    
    
    26,394
    
    
    5.8 Years
    
    
    26.61
    
    
    
    26,394
    
    
    
    26.61$32.01 - $36.00
    
    
    77,998
    
    
    7.3 Years
    
    
    34.81
    
    
    
    70,726
    
    
    
    34.96$36.01 - $40.00
    
    
    21,326
    
    
    5.9 Years
    
    
    37.94
    
    
    
    0
    
    
    NA$40.01 - $44.00
    
    
    7,514
    
    
    6.8 Years
    
    
    40.28
    
    
    
    0
    
    
    NAOutstanding at year end
    
    
    271,755
    
    
    5.9 Years
    
    $
    24.34
    
    
    
    181,544
    
    
    $
    23.68
   2007
    
    2006
    
    2005Minimum exercise price
    
    $
    8.22
    
    
    $
    7.09
    
    
    $
    7.09Maximum exercise price
    
    
    40.28
    
    
    
    40.28
    
    
    
    40.28Average remaining option term
    
    5.9 Years
    
    6.1 Years
    
    6.5 Years
  2007
    
    2006
    
    2005Aggregate intrinsic value of stock options exercised
    
    $
    1,019,000
    
    
    $
    1,616,000
    
    
    $
    1,243,000Cash received from stock option exercises
    
    
    56,000
    
    
    
    229,000
    
    
    
    80,000Tax benefit realized from stock option exercises
    
    
    0
    
    
    
    0
    
    
    
    0Weighted average per share fair value of stock
options granted
    
    
    4.60
    
    
    
    11.44
    
    
    
    13.51
     F-53




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##### Table of Contents



NOTE 10  RELATED PARTIES
  2007
    
    
    2006Beginning balance
    
    $
    8,797,000
    
    
    $
    8,865,000New loans
    
    
    9,551,000
    
    
    
    2,356,000Repayments
    
    
    (3,629,000
    )
    
    
    (2,424,000
    )Ending balance
    
    $
    14,719,000
    
    
    $
    8,797,000
  NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
     F-54




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##### Table of Contents



NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
  2007
    
    
    2006Commercial unused lines of credit
    
    $
    377,493,000
    
    
    $
    345,195,000Unused lines of credit secured by 1  4 family
residential properties
    
    
    33,083,000
    
    
    
    29,314,000Credit card unused lines of credit
    
    
    9,035,000
    
    
    
    8,510,000Other consumer unused lines of credit
    
    
    6,910,000
    
    
    
    7,197,000Commitments to make loans
    
    
    66,196,000
    
    
    
    60,850,000Standby letters of credit
    
    
    81,292,000
    
    
    
    73,241,000$
    574,009,000
    
    
    $
    524,307,000
   2007
    
    2006Contract
    
    Carrying
    
    Contract
    
    CarryingAmount
    
    Value
    
    Amount
    
    ValueStandby letters of credit
    
    $
    81,292,000
    
    
    $
    357,000
    
    
    $
    73,241,000
    
    
    $
    279,000
   F-55




---



##### Table of Contents



NOTE 12  BENEFIT PLANS
      F-56




---



##### Table of Contents



NOTE 13  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairValues
    
    Values
    
    Values
    
    ValuesFinancial assetsCash and cash equivalents
    
    $
    29,430,000
    
    
    $
    29,430,000
    
    
    $
    51,380,000
    
    
    $
    51,380,000Securities available for sale
    
    
    136,673,000
    
    
    
    136,673,000
    
    
    
    130,967,000
    
    
    
    130,967,000Securities held to maturity
    
    
    65,330,000
    
    
    
    66,440,000
    
    
    
    63,943,000
    
    
    
    65,025,000Federal Home Loan Bank stock
    
    
    9,733,000
    
    
    
    9,733,000
    
    
    
    7,509,000
    
    
    
    7,509,000Loans, net
    
    
    1,774,066,000
    
    
    
    1,777,883,000
    
    
    
    1,724,067,000
    
    
    
    1,707,039,000Bank owned life insurance policies
    
    
    39,118,000
    
    
    
    39,118,000
    
    
    
    30,858,000
    
    
    
    30,858,000Accrued interest receivable
    
    
    9,957,000
    
    
    
    9,957,000
    
    
    
    10,287,000
    
    
    
    10,287,000Financial liabilitiesDeposits
    
    
    1,591,181,000
    
    
    
    1,585,921,000
    
    
    
    1,646,903,000
    
    
    
    1,654,798,000Securities sold under agreements
to repurchase
    
    
    97,465,000
    
    
    
    97,465,000
    
    
    
    85,472,000
    
    
    
    85,472,000Federal funds purchased
    
    
    13,800,000
    
    
    
    13,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000Federal Home Loan Bank advances
    
    
    180,000,000
    
    
    
    180,303,000
    
    
    
    95,000,000
    
    
    
    94,801,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,678,000
    
    
    
    32,990,000
    
    
    
    32,984,000Accrued interest payable
    
    
    21,130,000
    
    
    
    21,130,000
    
    
    
    20,213,000
    
    
    
    20,213,000
   F-57




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##### Table of Contents



NOTE 14  EARNINGS PER SHARE
  2007
    
    
    2006
    
    
    2005BasicNet income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000Weighted average common shares outstanding
    
    
    8,453,483
    
    
    
    8,403,163
    
    
    
    8,357,304Basic earnings per common share
    
    $
    1.06
    
    
    $
    2.36
    
    
    $
    2.14DilutedNet income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000Weighted average common shares outstanding for
basic earnings per common share
    
    
    8,453,483
    
    
    
    8,403,163
    
    
    
    8,357,304Add: Dilutive effects of share-based awards
    
    
    44,255
    
    
    
    114,809
    
    
    
    186,717Average shares and dilutive potential
common shares
    
    
    8,497,738
    
    
    
    8,517,972
    
    
    
    8,544,021Diluted earnings per common share
    
    $
    1.06
    
    
    $
    2.33
    
    
    $
    2.10
  NOTE 15  SUBORDINATED DEBENTURES
    F-58




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##### Table of Contents



NOTE 16  REGULATORY MATTERS
    Minimum Requiredto be WellMinimum Required
    
    Capitalized Underfor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2007Total capital (to risk
weighted assets)Consolidated
    
    $
    235,700
    
    
    
    11.4
    %
    
    $
    165,562
    
    
    
    8.0
    %
    
    $NA
        
    NABank
    
    
    232,435
    
    
    
    11.3
    
    
    
    165,292
    
    
    
    8.0
    
    
    
    206,615
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    209,886
    
    
    
    10.1
    
    
    
    82,781
    
    
    
    4.0
    
    
    NA
        
    NABank
    
    
    206,621
    
    
    
    10.0
    
    
    
    82,646
    
    
    
    4.0
    
    
    
    123,969
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    209,886
    
    
    
    10.0
    
    
    
    84,169
    
    
    
    4.0
    
    
    NA
        
    NABank
    
    
    206,621
    
    
    
    9.8
    
    
    
    84,061
    
    
    
    4.0
    
    
    
    105,076
    
    
    
    5.0
  F-59




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##### Table of Contents



NOTE 16  REGULATORY MATTERS
 Minimum Requiredto be WellMinimum Required
    
    Capitalized Underfor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2006Total capital (to risk
weighted assets)Consolidated
    
    $
    226,428
    
    
    
    11.5
    %
    
    $
    158,196
    
    
    
    8.0
    %
    
    $NA
        
    NABank
    
    
    222,812
    
    
    
    11.3
    
    
    
    158,019
    
    
    
    8.0
    
    
    
    197,524
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    205,017
    
    
    
    10.4
    
    
    
    79,098
    
    
    
    4.0
    
    
    NA
        
    NABank
    
    
    201,401
    
    
    
    10.2
    
    
    
    79,010
    
    
    
    4.0
    
    
    
    118,514
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    205,017
    
    
    
    10.0
    
    
    
    81,682
    
    
    
    4.0
    
    
    NA
    
        NABank
    
    
    201,401
    
    
    
    9.9
    
    
    
    81,623
    
    
    
    4.0
    
    
    
    102,029
    
    
    
    5.0
   NOTE 17  OTHER COMPREHENSIVE INCOME/(LOSS)
  2007
    
    
    2006
    
    
    2005Unrealized holding gains and losses on
available-for-sale securities
    
    $
    2,110,000
    
    
    $
    470,000
    
    
    $
    (2,368,000
    )Reclassification adjustments for gains
and losses later recognized in income
    
    
    0
    
    
    
    0
    
    
    
    0Net unrealized gains and losses
    
    
    2,110,000
    
    
    
    470,000
    
    
    
    (2,368,000
    )Tax effect of unrealized holding gains and
losses on available-for-sale securities
    
    
    (739,000
    )
    
    
    (164,000
    )
    
    
    828,000Tax effect of reclassification adjustments for
gains and losses later recognized in income
    
    
    0
    
    
    
    0
    
    
    
    0Other comprehensive income/(loss)
    
    $
    1,371,000
    
    
    $
    306,000
    
    
    $
    (1,540,000
    )
  F-60




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##### Table of Contents



NOTE 18  QUARTERLY FINANCIAL DATA (UNAUDITED)
 Interest
    
    Net Interest
    
    Net
    
    Earnings per ShareIncome
    
    Income
    
    Income
    
    Basic
    
    Diluted2007First quarter
    
    $
    36,025,000
    
    
    $
    14,484,000
    
    
    $
    4,283,000
    
    
    $
    0.51
    
    
    $
    0.51Second quarter
    
    
    36,084,000
    
    
    
    13,948,000
    
    
    
    2,221,000
    
    
    
    0.26
    
    
    
    0.26Third quarter
    
    
    36,779,000
    
    
    
    14,051,000
    
    
    
    2,367,000
    
    
    
    0.28
    
    
    
    0.28Fourth quarter
    
    
    35,293,000
    
    
    
    13,074,000
    
    
    
    95,000
    
    
    
    0.01
    
    
    
    0.012006First quarter
    
    $
    31,099,000
    
    
    $
    15,099,000
    
    
    $
    4,929,000
    
    
    $
    0.59
    
    
    $
    0.58Second quarter
    
    
    33,746,000
    
    
    
    15,646,000
    
    
    
    5,111,000
    
    
    
    0.61
    
    
    
    0.60Third quarter
    
    
    35,675,000
    
    
    
    15,547,000
    
    
    
    5,202,000
    
    
    
    0.62
    
    
    
    0.61Fourth quarter
    
    
    36,740,000
    
    
    
    15,295,000
    
    
    
    4,605,000
    
    
    
    0.54
    
    
    
    0.542005First quarter
    
    $
    21,705,000
    
    
    $
    12,655,000
    
    
    $
    4,362,000
    
    
    $
    0.55
    
    
    $
    0.53Second quarter
    
    
    24,346,000
    
    
    
    13,608,000
    
    
    
    4,690,000
    
    
    
    0.59
    
    
    
    0.58Third quarter
    
    
    26,764,000
    
    
    
    14,072,000
    
    
    
    4,300,000
    
    
    
    0.54
    
    
    
    0.53Fourth quarter
    
    
    29,315,000
    
    
    
    14,957,000
    
    
    
    4,549,000
    
    
    
    0.57
    
    
    
    0.56
 NOTE 19  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
   2007
    
    
    2006ASSETSCash and cash equivalents
    
    $
    2,137,000
    
    
    $
    2,323,000Investment in bank subsidiary
    
    
    206,890,000
    
    
    
    200,300,000Other assets
    
    
    3,373,000
    
    
    
    2,890,000Total assets
    
    $
    212,400,000
    
    
    $
    205,513,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilities
    
    $
    1,255,000
    
    
    $
    608,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Shareholders equity
    
    
    178,155,000
    
    
    
    171,915,000Total liabilities and shareholders equity
    
    $
    212,400,000
    
    
    $
    205,513,000
  F-61




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##### Table of Contents



NOTE 19  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
  2007
    
    
    2006
    
    
    2005IncomeDividends from subsidiaries
    
    $
    7,291,000
    
    
    $
    6,440,000
    
    
    $
    4,832,000Other
    
    
    19,000
    
    
    
    73,000
    
    
    
    46,000Total income
    
    
    7,310,000
    
    
    
    6,513,000
    
    
    
    4,878,000ExpensesInterest expense
    
    
    2,512,000
    
    
    
    2,429,000
    
    
    
    1,837,000Other operating expenses
    
    
    2,835,000
    
    
    
    1,917,000
    
    
    
    942,000Total expenses
    
    
    5,347,000
    
    
    
    4,346,000
    
    
    
    2,779,000Income before income tax benefit and equity in
undistributed net income of subsidiary
    
    
    1,963,000
    
    
    
    2,167,000
    
    
    
    2,099,000Federal income tax benefit
    
    
    (1,783,000
    )
    
    
    (1,392,000
    )
    
    
    (936,000
    )Equity in undistributed net income of subsidiary
    
    
    5,220,000
    
    
    
    16,288,000
    
    
    
    14,866,000Net income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000
  F-62




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##### Table of Contents



NOTE 19  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
  2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    8,966,000
    
    
    $
    19,847,000
    
    
    $
    17,901,000Adjustments to reconcile net income to net
cash from operating activities:Equity in undistributed income of subsidiary
    
    
    (5,220,000
    )
    
    
    (16,288,000
    )
    
    
    (14,866,000
    )Stock-based compensation expense
    
    
    361,000
    
    
    
    242,000
    
    
    
    0Change in other assets
    
    
    (483,000
    )
    
    
    9,000
    
    
    
    (98,000
    )Change in other liabilities
    
    
    648,000
    
    
    
    73,000
    
    
    
    317,000Net cash from operating activities
    
    
    4,272,000
    
    
    
    3,883,000
    
    
    
    3,254,000Cash flows from investing activitiesNet capital investment into subsidiaries
    
    
    0
    
    
    
    0
    
    
    
    0Net cash from investing activities
    
    
    0
    
    
    
    0
    
    
    
    0Cash flows from financing activitiesStock option exercises, net
    
    
    56,000
    
    
    
    229,000
    
    
    
    80,000Employee stock purchase plan
    
    
    91,000
    
    
    
    107,000
    
    
    
    97,000Dividend reinvestment plan
    
    
    76,000
    
    
    
    98,000
    
    
    
    159,000Cash dividends
    
    
    (4,677,000
    )
    
    
    (4,035,000
    )
    
    
    (3,185,000
    )Fractional shares paid
    
    
    (4,000
    )
    
    
    (4,000
    )
    
    
    (4,000
    )Net cash for financing activities
    
    
    (4,458,000
    )
    
    
    (3,605,000
    )
    
    
    (2,853,000
    )Net change in cash and cash equivalents
    
    
    (186,000
    )
    
    
    278,000
    
    
    
    401,000Cash and cash equivalents at beginning of period
    
    
    2,323,000
    
    
    
    2,045,000
    
    
    
    1,644,000Cash and cash equivalents at end of period
    
    $
    2,137,000
    
    
    $
    2,323,000
    
    
    $
    2,045,000
 F-63




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##### Table of Contents



SIGNATURES
  MERCANTILE BANK CORPORATION/s/ Michael H. PriceMichael H. PriceChairman of the Board, President and Chief
Executive Officer  /s/ Betty S. Burton

Betty S. Burton, Director
    
    /s/ Lawrence W. Larsen

Lawrence W. Larsen, Director/s/ David M. Cassard
    
    /s/ Calvin D. MurdockDavid M. Cassard, Director
    
    Calvin D. Murdock, Director/s/ Edward J. Clark
    
    /s/ Michael H. PriceEdward J. Clark, Director
    
    Michael H. Price, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)/s/ Peter A. Cordes
    
    /s/ Merle J. PrinsPeter A. Cordes, Director
    
    Merle J. Prins, Director/s/ C. John Gill
    
    /s/ Timothy O. SchadC. John Gill, Director
    
    Timothy O. Schad, Director/s/ Doyle A. Hayes
    
    /s/ Dale J. VisserDoyle A. Hayes, Director
    
    Dale J. Visser, Director/s/ David M. Hecht
    
    /s/ Donald Williams, Sr.David M. Hecht, Director
    
    Donald Williams, Sr., Director/s/ Susan K. Jones
    
    /s/ Charles E. ChristmasSusan K. Jones, Director
    
    Charles E. Christmas, Senior Vice President,
Chief Financial Officer and Treasurer
(principal financial and accounting officer)




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    
    Our Articles of Incorporation are incorporated by reference to
exhibit 3.1 of our Form 10-Q for the quarter ended June 30,
20043.2
    
    
    Our Amended and Restated Bylaws dated as of January 16, 2003
are incorporated by reference to exhibit 3.2 of our
Registration Statement on Form S-3 (Commission File No.
333-103376) that became effective on February 21, 200310.1
    
    
    Our 1997 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Registration Statement on
Form SB-2 (Commission File No. 333-33081) that became
effective on October 23, 1997 *10.2
    
    
    Our 2000 Employee Stock Option Plan is incorporated by
reference to exhibit 10.14 of our Form 10-K for the year ended
December 31, 2000 *10.3
    
    
    Our 2004 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Form 10-Q for the quarter
ended September 30, 2004 *10.4
    
    
    Form of Stock Option Agreement for options under the 2004
Employee Stock Option Plan is incorporated by reference to
exhibit 10.2 of our Form 10-Q for the quarter ended September
30, 2004 *10.5
    
    
    Our Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.26 of our Form 10-K for the year ended
December 31, 2002 *10.6
    
    
    Form of Stock Option Agreement for options under the
Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Form 8-K filed October 22,
2004 *10.7
    
    
    Mercantile Bank of West Michigan Deferred Compensation Plan
for Members of the Board of Directors (1999) is incorporated
by reference to Exhibit 10.6 of the Registration Statement of
the company and our trust on Form SB-2 (Commission File Nos.
333-84313 and 333-84313-01) that became effective on September
13, 1999 *10.8
    
    
    Amendment dated October 18, 2001 to Mercantile Bank of West
Michigan Deferred Compensation Plan for Members of the Board
of Directors (1999)10.9
    
    
    Mercantile Bank of Michigan Amended and Restated Deferred
Compensation Plan for Members of the Board of Directors dated
June 29, 200610.10
    
    
    First Amendment dated October 10, 2007 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 200610.11
    
    
    Agreement between Fiserv Solutions, Inc. and our bank dated
September 10, 1997, is incorporated by reference to exhibit
10.3 of our Registration Statement on Form SB-2 (Commission
File No. 333-33081) that became effective on October 23, 199710.12
    
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated May 12, 2000 extending the
agreement between Fiserv Solutions, Inc. and our bank dated
September 10, 1997, is incorporated by reference to exhibit
10.15 of our Form 10-K for the year ended December 31, 2000




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.13
    
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated November 21, 2002 extending
the agreement between Fiserv Solutions, Inc. and our bank
dated September 10, 1997, is incorporated by reference to
exhibit 10.5 of our Form 10-K for the year ended December 31,
200210.14
    
    
    Extension Agreement of Data Processing Contract between Fiserv
Solutions, Inc. and our bank dated December 20, 2006 extending
the agreements between Fiserv Solutions, Inc. and our bank
dated September 10, 1997 and November 21, 200210.15
    
    
    Amended and Restated Employment Agreement dated as of October
18, 2001, among the company, our bank and Gerald R. Johnson,
Jr., is incorporated by reference to exhibit 10.21 of our Form
10-K for the year ended December 31, 2001 *10.16
    
    
    Amended and Restated Employment Agreement dated as of October
18, 2001, among the company, our bank and Michael H. Price, is
incorporated by reference to exhibit 10.22 of our Form 10-K
for the year ended December 31, 2001 *10.17
    
    
    Employment Agreement dated as of October 18, 2001, among the
company, our bank and Robert B. Kaminski, Jr., is incorporated
by reference to exhibit 10.23 of our Form 10-K for the year
ended December 31, 2001 *10.18
    
    
    Employment Agreement dated as of October 18, 2001, among the
company, our bank and Charles E. Christmas, is incorporated by
reference to exhibit 10.23 of our Form 10-K for the year ended
December 31, 2001 *10.19
    
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Gerald R. Johnson, Jr.,
is incorporated by reference to exhibit 10.21 of our Form 10-K
for the year ended December 31, 2002 *10.20
    
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Michael H. Price, is
incorporated by reference to exhibit 10.22 of our Form 10-K
for the year ended December 31, 2002 *10.21
    
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Robert B. Kaminski, Jr.,
is incorporated by reference to exhibit 10.23 of our Form 10-K
for the year ended December 31, 2002 *10.22
    
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Charles E. Christmas, is
incorporated by reference to exhibit 10.24 of our Form 10-K
for the year ended December 31, 2002 *10.23
    
    
    Amendment to Employment Agreement dated as of October 28,
2004, among the company, our bank and Robert B. Kaminski, Jr.,
is incorporated by reference to exhibit 10.21 of our Form 10-K
for the year ended December 31, 2004 *10.24
    
    
    Junior Subordinated Indenture between us and Wilmington Trust
Company dated September 16, 2004 providing for the issuance of
the Series A and Series B Floating Rate Junior Subordinated
Notes due 2034 is incorporated by reference to exhibit 10.1 of
our Form 8-K filed December 15, 200410.25
    
    

Amended and Restated Trust Agreement dated September 16, 2004 for Mercantile Bank Capital Trust I is incorporated by
reference to exhibit 10.2 of our Form 8-K filed December 15,
200410.26
    
    
    Placement Agreement between us, Mercantile Bank Capital Trust
I, and SunTrust Capital Markets, Inc. dated September 16, 2004
is incorporated by reference to exhibit 10.3 of our Form 8-K
filed December 15, 2004




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.27
    
    
    Guarantee Agreement dated September 16, 2004 between
Mercantile as Guarantor and Wilmington Trust Company as
Guarantee Trustee is incorporated by reference to exhibit 10.4
of our Form 8-K filed December 15, 200410.28
    
    
    Form of Agreement Amending Stock Option Agreement, dated
November 17, 2005 issued under our 2004 Employee Stock Option
Plan, is incorporated by reference to exhibit 10.1 of our Form
8-K filed December 14, 2005 *10.29
    
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Gerald R. Johnson,
Jr. is incorporated by reference to exhibit 10.28 of our Form
10-K for the year ended December 31, 2005 *10.30
    
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Michael H. Price is
incorporated by reference to exhibit 10.29 of our Form 10-K
for the year ended December 31, 2005 *10.31
    
    
    Third Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Robert B. Kaminski,
Jr. is incorporated by reference to exhibit 10.30 of our Form
10-K for the year ended December 31, 2005 *10.32
    
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Charles E. Christmas
is incorporated by reference to exhibit 10.31 of our Form 10-K
for the year ended December 31, 2005 *10.33
    
    
    Form of Mercantile Bank of Michigan Executive Deferred
Compensation Agreement, that has been entered into between our
bank and each of Gerald R. Johnson, Jr., Michael H. Price,
Robert B. Kaminski, Jr., Charles E. Christmas, and certain
other officers of our bank is incorporated by reference to
exhibit 10.32 of our Form 10-K for the year ended December 31,
2005 *10.34
    
    
    Form of Mercantile Bank of Michigan Amended and Restated
Executive Deferred Compensation Agreement dated November 18,
2006, that has been entered into between our bank and each of
Gerald R. Johnson, Jr., Michael H. Price, Robert B. Kaminski,
Jr., Charles E. Christmas, and certain other officers of our
bank *10.35
    
    
    Form of First Amendment to the Mercantile Bank of Michigan
Executive Deferred Compensation Agreement dated November 18,
2006, that has been entered into between our bank and each of
Gerald R. Johnson, Jr., Michael H. Price, Robert B. Kaminski,
Jr., Charles E. Christmas, and certain other officers of our
bank, dated October 25, 2007 *10.36
    
    
    Form of Mercantile Bank of Michigan Split Dollar Agreement
that has been entered into between our bank and each of Gerald
R. Johnson, Jr., Michael H. Price, Robert B. Kaminski, Jr.,
Charles E. Christmas, and certain other officers of our bank
is incorporated by reference to exhibit 10.33 of our Form 10-K
for the year ended December 31, 2005 *10.37
    
    
    Director Fee Summary *10.38
    
    
    Lease Agreement between our bank and The Conlin Company dated
July 12, 2005 for our Ann Arbor, Michigan office is
incorporated by reference to exhibit 10.36 of our Form 10-K
for the year ended December 31, 200510.39
    
    
    Stock Incentive Plan of 2006 is incorporated by reference to
Appendix A of our proxy statement for our April 27, 2006
annual meeting of shareholders that was filed with the
Securities and Exchange Commission *




---



##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.40
    
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted in 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed November 22,
2006 *10.41
    
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted after
2006 under our Stock Incentive Plan of 2006 *10.42
    
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
in 2006 under our Stock Incentive Plan of 2006 is incorporated
by reference to exhibit 10.2 of our Form 8-K filed November
22, 2006 *10.43
    
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
after 2006 under our Stock Incentive Plan of 2006 *10.44
    
    
    Executive Officer Bonus Plan for 2007 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed January 29,
2007 *10.45
    
    
    Retirement Agreement by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 8-K
filed May 25, 2007 *10.46
    
    
    Additional Release of Claims Pursuant to Retirement Agreement
Dated May 24, 2007 by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 10-Q for
the quarter ended September 30, 2007 *10.47
    
    
    Lease Agreement between our bank and CD Partners LLC dated
October 2, 2007 for our Oakland County, Michigan office21
    
    
    Subsidiaries of the company23.1
    
    
    Consent of BDO Seidman, LLP23.2
    
    
    Consent of Crowe Chizek and Company LLC31
    
    
    Rule 13a-14(a) Certifications32.1
    
    
    Section 1350 Chief Executive Officer Certification32.2
    
    
    Section 1350 Chief Financial Officer Certification
 
 *
    
    Management contract or compensatory plan