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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, 2010
 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
  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
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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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
  Our Trust
  3.




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Effect of Government Monetary Policies
  Regulation and Supervision
      Employees
  4.




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Lending Policy
      Lending Activity
 Commercial Loans.
  5.




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Single-Family Residential Real Estate Loans.
  Consumer Loans.
   Loan and Lease Portfolio Quality
  6.




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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
  9.




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Item 1A. Risk Factors.
  Difficult market conditions have adversely affected our industry.
  Significant declines in the value of commercial real estate adversely impact us.
  Market volatility may adversely affect us.
  10.




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Adverse changes in economic conditions or interest rates may negatively affect our earnings,
capital and liquidity.
  The soundness of other financial institutions could adversely affect us.
  11.




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The effect of the U.S. Governments response to the financial crisis remains uncertain.
  The effect of financial services legislation and regulations remains uncertain.
  12.




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The U.S. Governments legislative and regulatory response to the financial crisis and our
participation in its programs may have adverse effects on us.
  Our credit losses could increase and our allowance 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.
    13.




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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 future success is dependent on our ability to compete effectively in the highly competitive
banking industry.
  14.




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We are subject to significant government regulation, and any regulatory changes may adversely
affect us.
  The impending repeal of Federal prohibitions on payment of interest on demand deposits could
increase our interest expense.
  We may need to raise additional capital in the future, and such capital may not be available when
needed or at all.
   We continually encounter technological change, and we may have fewer resources than our competitors
to continue to invest in technological improvements.
  15.




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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.
  16.




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Item 1B.
    
    Unresolved Staff Comments
  Item 2.
    
    Properties.
      17.




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th
  Item 3.
    
    Legal Proceedings.
  Item 4.
    
    Reserved
 PART II
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
   High
    
    Low
    
    Dividend2010First Quarter
    
    $
    4.06
    
    
    $
    3.10
    
    
    $
    0.01Second Quarter
    
    
    6.66
    
    
    
    3.95
    
    
    
    0.00Third Quarter
    
    
    5.99
    
    
    
    3.99
    
    
    
    0.00Fourth Quarter
    
    
    8.40
    
    
    
    3.87
    
    
    
    0.002009First Quarter
    
    $
    6.48
    
    
    $
    3.01
    
    
    $
    0.04Second Quarter
    
    
    6.00
    
    
    
    2.84
    
    
    
    0.01Third Quarter
    
    
    4.79
    
    
    
    3.02
    
    
    
    0.01Fourth Quarter
    
    
    4.33
    
    
    
    3.00
    
    
    
    0.01
 18.




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19.




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Item 6.
    
    Selected Financial Data.
  Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations.
  Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  Item 8.
    
    Financial Statements and Supplementary Data.
  20.




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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.
  PART III
 Item 10.
    
    Directors, Executive Officers and Corporate Governance.
   21.




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Item 11.
    
    Executive Compensation.
  Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
    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)
    
    
    262,042
    
    
    $
    21.18
    
    
    
    419,000
    (2)Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    262,042
    
    
    $
    21.18
    
    
    
    419,000
 
 (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.
  22.




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PART IV
 Item 15.
    
    Exhibits and Financial Statement Schedules
  Reports of Independent Registered Public Accounting Firm dated March 14, 2011  BDO USA,
LLPConsolidated Balance Sheets  December 31, 2010 and 2009Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2010Consolidated Statements of Changes in Shareholders Equity for each of the three years in
the period ended December 31, 2010Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2010Notes to Consolidated Financial StatementsThe consolidated financial statements, the notes to the consolidated financial statements,
and the reports of our independent registered public accounting firm listed above are
incorporated by reference in Item 8 of this report.
 (2)
    
    Financial Statement Schedules
 Not 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,
20093.2
    
    
    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 *
 23.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.5
    
    
    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 Michigan Amended and Restated Deferred
Compensation Plan for Members of the Board of Directors dated
June 29, 2006 is incorporated by reference to exhibit 10.9 of
our Form 10-K for the year ended December 31, 200710.8
    
    
    First Amendment dated October 25, 2007 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 2006 is
incorporated by reference to exhibit 10.10 of our Form 10-K
for the year ended December 31, 200710.9
    
    
    Second Amendment dated October 23, 2008 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 2007 is
incorporated by reference to exhibit 10.9 of our Form 10-K for
the year ended December 31, 200810.10
    
    
    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, 199710.11
    
    
    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, 200010.12
    
    
    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,
200210.13
    
    
    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, 2002 is incorporated
by reference to exhibit 10.14 of our Form 10-K for the year
ended December 31, 200710.14
    
    
    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 *10.15
    
    
    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 *10.16
    
    
    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 *
 24.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.17
    
    
    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 *10.18
    
    
    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 *10.19
    
    
    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 *10.20
    
    
    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 *10.21
    
    
    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, 200410.22
    
    
    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,
200410.23
    
    
    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, 200410.24
    
    
    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, 200410.25
    
    
    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 *10.26
    
    
    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 *10.27
    
    
    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 *10.28
    
    
    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 *
 25.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.29
    
    
    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 is incorporated by reference to exhibit 10.34 of our Form
10-K for the year ended December 31, 2007 *10.30
    
    
    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 is incorporated by reference to
exhibit 10.35 of our Form 10-K for the year ended December 31,
2007 *10.31
    
    
    Form of Second 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
Michael H. Price, Robert B. Kaminski, Charles E. Christmas,
and certain other officers of our bank, dated October 23, 2008
is incorporated by reference to exhibit 10.34 of our Form 10-K
for the year ended December 31, 2008 *10.32
    
    
    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 *10.33
    
    
    Director Fee Summary is incorporated by reference to exhibit
10.33 of our Form 10-K for the year ended December 31, 2009 *10.34
    
    
    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, 200510.35
    
    
    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 *10.36
    
    
    Amendment and Restatement of Stock Incentive Plan of 2006
dated November 18, 2008 is incorporated by reference to
exhibit 10.39 of our Form 10-K for the year ended December 31,
2008 *10.37
    
    
    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 *10.38
    
    
    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 is incorporated by
reference to exhibit 10.41 of our Form 10-K for the year ended
December 31, 2007 *
 26.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.39
    
    
    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 *10.40
    
    
    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 is
incorporated by reference to exhibit 10.43 of our Form 10-K
for the year ended December 31, 2007 *10.41
    
    
    Mercantile Bank Corporation Employee Stock Purchase Plan of
2002 is incorporated by reference to exhibit 10.47 of our Form
10-K for the year ended December 31, 200810.42
    
    
    First Amendment to Mercantile Bank Corporation Employee Stock
Purchase Plan of 2002 is incorporated by reference to exhibit
4(c) of our Registration Statement on Form S-8 (Commission
File No. 333-158280) that became effective on March 30, 200910.43
    
    
    Second Amendment to Mercantile Bank Corporation Employee Stock
Purchase Plan of 2002 is incorporated by reference to exhibit
4(d) of our Registration Statement on Form S-8 (Commission
File No. 333-158280) that became effective on March 30, 200910.44
    
    
    Lease Agreement between our bank and CD Partners LLC dated
October 2, 2007 for our Oakland County, Michigan office is
incorporated by reference to exhibit 10.47 of our Form 10-K
for the year ended December 31, 200710.45
    
    
    Letter Agreement, dated as of May 15, 2009, between Mercantile
Bank Corporation and the United States Department of the
Treasury, including the Securities Purchase Agreement 
Standard Terms and Schedules is incorporated by reference to
exhibit 10.1 of our Form 8-K filed May 15, 200910.46
    
    
    Side Letter Agreement, dated as of May 15, 2009, between
Mercantile Bank Corporation and the United States Department
of the Treasury regarding the American Recovery and
Reinvestment Act of 2009 is incorporated by reference to
exhibit 10.2 of our Form 8-K filed May 15, 200910.47
    
    
    Amendment to Employment Agreements, dated May 15, 2009, by and
among Mercantile Bank Corporation, Mercantile Bank of
Michigan, Michael H. Price, Robert B. Kaminski, Jr. and
Charles E. Christmas is incorporated by reference to exhibit
10.3 of our Form 8-K filed May 15, 2009 *10.48
    
    
    Form of Waiver executed by each of Michael H. Price, Robert B.
Kaminski, Jr. and Charles E. Christmas is incorporated by
reference to exhibit 10.4 of our Form 8-K filed May 15, 200910.49
    
    
    Amendment to Commercial Lease between our bank and Jerry
Helmer and Ruthann Helmer dated August 14, 2007 for our Ann
Arbor, Michigan office is incorporated by reference to exhibit
10.5 of our Form 10-Q for the quarter ended June 30, 2009
 27.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.50
    
    
    Termination of Lease Agreement between our bank and CD
Partners LLC dated May 21, 2009 for our Oakland County,
Michigan office is incorporated by reference to exhibit 10.6
of our Form 10-Q for the quarter ended June 30, 200910.51
    
    
    Termination of Lease Agreement between our bank and Jerry
Helmer and Ruthann Helmer dated July 22, 2009 for our Ann
Arbor, Michigan office is incorporated by reference to exhibit
10.7 of our Form 10-Q for the quarter ended June 30, 200910.52
    
    
    Warrant to Purchase Common Stock of Mercantile Bank
Corporation, dated May 15, 2009 is incorporated by reference
to exhibit 4.2 of our Form 8-K filed May 15, 200921
    
    
    Subsidiaries of the company is incorporated by reference to
exhibit 21 of our Form 10-K for the year ended December 31,
200823
    
    
    Consent of BDO USA, LLP31
    
    
    Rule 13a-14(a) Certifications32.1
    
    
    Section 1350 Chief Executive Officer Certification32.2
    
    
    Section 1350 Chief Financial Officer Certification99.1
    
    
    Certification of our principal executive officer and principal
financial officer relating to our participation in the Capital
Purchase Program of the Troubled Asset Relief Program
 
 *
    
    Management contract or compensatory plan (c)
    
    Financial Statements Not Included In Annual Report
 Not applicable
 28.




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MERCANTILE BANK CORPORATION
 FINANCIAL INFORMATION
 F-1




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##### 



SELECTED FINANCIAL DATA
    
    
    F-3MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    F-4REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-35REPORT BY MERCANTILE BANK CORPORATIONS MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
    
    
    F-37CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    F-38CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-39CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    
    
    F-41CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-44NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-46EX-23EX-31EX-32.1EX-32.2EX-99.1
  F-2




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SELECTED FINANCIAL DATA
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in thousands except per share data)Consolidated Results of Operations:Interest income
    
    $
    88,143
    
    
    $
    104,909
    
    
    $
    121,072
    
    
    $
    144,181
    
    
    $
    137,260Interest expense
    
    
    31,794
    
    
    
    53,576
    
    
    
    74,863
    
    
    
    88,624
    
    
    
    75,673Net interest income
    
    
    56,349
    
    
    
    51,333
    
    
    
    46,209
    
    
    
    55,557
    
    
    
    61,587Provision for loan and lease losses
    
    
    31,800
    
    
    
    59,000
    
    
    
    21,200
    
    
    
    11,070
    
    
    
    5,775Noninterest income
    
    
    9,244
    
    
    
    7,558
    
    
    
    7,282
    
    
    
    5,870
    
    
    
    5,261Noninterest expense
    
    
    47,156
    
    
    
    46,488
    
    
    
    42,126
    
    
    
    38,356
    
    
    
    32,262Income (loss) before income tax expense (benefit)
    
    
    (13,363
    )
    
    
    (46,597
    )
    
    
    (9,835
    )
    
    
    12,001
    
    
    
    28,811Income tax expense (benefit)
    
    
    (47
    )
    
    
    5,490
    
    
    
    (4,876
    )
    
    
    3,035
    
    
    
    8,964Net income (loss)
    
    
    (13,316
    )
    
    
    (52,087
    )
    
    
    (4,959
    )
    
    
    8,966
    
    
    
    19,847Preferred stock dividends and accretion
    
    
    1,295
    
    
    
    802
    
    
    
    0
    
    
    
    0
    
    
    
    0Net income (loss) attributable to common shares
    
    $
    (14,611
    )
    
    $
    (52,889
    )
    
    $
    (4,959
    )
    
    $
    8,966
    
    
    $
    19,847Consolidated Balance Sheet Data:Total assets
    
    $
    1,632,421
    
    
    $
    1,906,208
    
    
    $
    2,208,010
    
    
    $
    2,121,403
    
    
    $
    2,067,268Cash and cash equivalents
    
    
    64,198
    
    
    
    21,735
    
    
    
    25,804
    
    
    
    29,430
    
    
    
    51,380Securities
    
    
    235,175
    
    
    
    257,384
    
    
    
    242,787
    
    
    
    211,736
    
    
    
    202,419Loans and leases
    
    
    1,262,630
    
    
    
    1,539,818
    
    
    
    1,856,915
    
    
    
    1,799,880
    
    
    
    1,745,478Allowance for loan and lease losses
    
    
    45,368
    
    
    
    47,878
    
    
    
    27,108
    
    
    
    25,814
    
    
    
    21,411Bank owned life insurance
    
    
    46,743
    
    
    
    45,024
    
    
    
    42,462
    
    
    
    39,118
    
    
    
    30,858Deposits
    
    
    1,273,832
    
    
    
    1,401,627
    
    
    
    1,599,575
    
    
    
    1,591,181
    
    
    
    1,646,903Securities sold under agreements to repurchase
    
    
    116,979
    
    
    
    99,755
    
    
    
    94,413
    
    
    
    97,465
    
    
    
    85,472Federal Home Loan Bank advances
    
    
    65,000
    
    
    
    205,000
    
    
    
    270,000
    
    
    
    180,000
    
    
    
    95,000Subordinated debentures
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990Shareholders equity
    
    
    125,936
    
    
    
    140,104
    
    
    
    174,372
    
    
    
    178,155
    
    
    
    171,915Consolidated Financial Ratios:Return on average assets
    
    
    (0.80
    %)
    
    
    (2.51
    %)
    
    
    (0.23
    %)
    
    
    0.43
    %
    
    
    1.01
    %Return on average shareholders equity
    
    
    (10.62
    %)
    
    
    (29.91
    %)
    
    
    (2.87
    %)
    
    
    5.10
    %
    
    
    12.19
    %Average shareholders equity to average assets
    
    
    7.56
    %
    
    
    8.40
    %
    
    
    8.01
    %
    
    
    8.44
    %
    
    
    8.31
    %Nonperforming loans and leases to total loans and leases
    
    
    5.50
    %
    
    
    5.52
    %
    
    
    2.66
    %
    
    
    1.66
    %
    
    
    0.49
    %Allowance for loan and lease losses to total loans and leases
    
    
    3.59
    %
    
    
    3.11
    %
    
    
    1.46
    %
    
    
    1.43
    %
    
    
    1.23
    %Tier 1 leverage capital
    
    
    9.09
    %
    
    
    8.64
    %
    
    
    9.17
    %
    
    
    9.97
    %
    
    
    10.04
    %Tier 1 leverage risk-based capital
    
    
    11.17
    %
    
    
    9.92
    %
    
    
    9.68
    %
    
    
    10.14
    %
    
    
    10.37
    %Total risk-based capital
    
    
    12.45
    %
    
    
    11.18
    %
    
    
    10.93
    %
    
    
    11.39
    %
    
    
    11.45
    %Per Common Share Data:Net income (loss):Basic
    
    $
    (1.72
    )
    
    $
    (6.23
    )
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.36Diluted
    
    
    (1.72
    )
    
    
    (6.23
    )
    
    
    (0.59
    )
    
    
    1.05
    
    
    
    2.33Book value at end of period
    
    
    12.20
    
    
    
    13.86
    
    
    
    20.29
    
    
    
    20.89
    
    
    
    21.43Dividends declared
    
    
    0.01
    
    
    
    0.07
    
    
    
    0.31
    
    
    
    0.55
    
    
    
    0.48Dividend payout ratio
    
    NA
    
    NA
    
    NA
    
    
    52.16
    %
    
    
    20.34
    %
 F-3




---



##### 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



Income Tax Accounting
  F-5




---



##### Table of Contents



INTRODUCTION
       FINANCIAL OVERVIEW
  F-6




---



##### Table of Contents



FINANCIAL CONDITION
  Earning Assets
   F-7




---



##### Table of Contents



12/31/10
    
    
    9/30/10
    
    
    6/30/10
    
    
    3/31/10
    
    
    12/31/09Residential-Related:Vacant Land
    
    $
    17,201,000
    
    
    $
    18,013,000
    
    
    $
    20,351,000
    
    
    $
    20,871,000
    
    
    $
    19,465,000Land Development
    
    
    28,147,000
    
    
    
    29,735,000
    
    
    
    29,627,000
    
    
    
    32,199,000
    
    
    
    34,027,000Construction
    
    
    5,621,000
    
    
    
    5,854,000
    
    
    
    6,627,000
    
    
    
    7,872,000
    
    
    
    7,199,00050,969,000
    
    
    
    53,602,000
    
    
    
    56,605,000
    
    
    
    60,942,000
    
    
    
    60,691,000Comml Non-Owner Occupied:Vacant Land
    
    
    14,293,000
    
    
    
    15,416,000
    
    
    
    19,812,000
    
    
    
    22,304,000
    
    
    
    25,549,000Land Development
    
    
    17,807,000
    
    
    
    18,221,000
    
    
    
    18,585,000
    
    
    
    19,058,000
    
    
    
    19,402,000Construction
    
    
    31,827,000
    
    
    
    39,620,000
    
    
    
    52,295,000
    
    
    
    52,107,000
    
    
    
    65,697,000Commercial Buildings
    
    
    489,371,000
    
    
    
    509,777,000
    
    
    
    512,816,000
    
    
    
    539,284,000
    
    
    
    537,891,000553,298,000
    
    
    
    583,034,000
    
    
    
    603,508,000
    
    
    
    632,753,000
    
    
    
    648,539,000Comml Owner Occupied:Construction
    
    
    672,000
    
    
    
    0
    
    
    
    1,360,000
    
    
    
    1,651,000
    
    
    
    1,404,000Commercial Buildings
    
    
    282,388,000
    
    
    
    298,846,000
    
    
    
    302,768,000
    
    
    
    316,302,000
    
    
    
    324,451,000283,060,000
    
    
    
    298,846,000
    
    
    
    304,128,000
    
    
    
    317,953,000
    
    
    
    325,855,000Total
    
    $
    887,327,000
    
    
    $
    935,482,000
    
    
    $
    964,241,000
    
    
    $
    1,011,648,000
    
    
    $
    1,035,085,000
  F-8




---



##### Table of Contents



Less Than
    
    
    One Through
    
    
    More ThanOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    TotalConstruction and land development
    
    $
    79,504,000
    
    
    $
    37,272,000
    
    
    $
    889,000
    
    
    $
    117,665,000Real estate  residential properties
    
    
    48,884,000
    
    
    
    51,674,000
    
    
    
    9,956,000
    
    
    
    110,514,000Real estate  multi-family properties
    
    
    4,335,000
    
    
    
    44,445,000
    
    
    
    235,000
    
    
    
    49,015,000Real estate  commercial properties
    
    
    329,051,000
    
    
    
    378,266,000
    
    
    
    13,673,000
    
    
    
    720,990,000Commercial and industrial
    
    
    161,094,000
    
    
    
    93,627,000
    
    
    
    4,348,000
    
    
    
    259,069,000Leases
    
    
    132,000
    
    
    
    262,000
    
    
    
    0
    
    
    
    394,000Consumer
    
    
    2,548,000
    
    
    
    2,318,000
    
    
    
    117,000
    
    
    
    4,983,000Total
    
    $
    625,548,000
    
    
    $
    607,864,000
    
    
    $
    29,218,000
    
    
    $
    1,262,630,000Fixed rate loans and leases
    
    $
    377,525,000
    
    
    $
    594,289,000
    
    
    $
    29,218,000
    
    
    $
    1,001,032,000Floating rate loans and leases
    
    
    248,024,000
    
    
    
    13,574,000
    
    
    
    0
    
    
    
    261,598,000Total
    
    $
    625,549,000
    
    
    $
    607,863,000
    
    
    $
    29,218,000
    
    
    $
    1,262,630,000
   F-9




---



##### Table of Contents



F-10




---



##### Table of Contents



12/31/10
    
    
    9/30/10
    
    
    6/30/10
    
    
    3/31/10
    
    
    12/31/09Residential Real Estate:Land Development
    
    $
    14,547,000
    
    
    $
    16,746,000
    
    
    $
    21,551,000
    
    
    $
    22,781,000
    
    
    $
    19,722,000Construction
    
    
    2,333,000
    
    
    
    2,924,000
    
    
    
    10,231,000
    
    
    
    11,425,000
    
    
    
    12,103,000Owner Occupied / Rental
    
    
    9,454,000
    
    
    
    7,251,000
    
    
    
    6,159,000
    
    
    
    5,908,000
    
    
    
    7,493,00026,334,000
    
    
    
    26,921,000
    
    
    
    37,941,000
    
    
    
    40,114,000
    
    
    
    39,318,000Commercial Real Estate:Land Development
    
    
    2,454,000
    
    
    
    2,277,000
    
    
    
    2,050,000
    
    
    
    3,031,000
    
    
    
    2,971,000Construction
    
    
    0
    
    
    
    0
    
    
    
    571,000
    
    
    
    1,238,000
    
    
    
    1,268,000Owner Occupied
    
    
    14,740,000
    
    
    
    15,083,000
    
    
    
    16,216,000
    
    
    
    17,311,000
    
    
    
    19,918,000Non-Owner Occupied
    
    
    34,209,000
    
    
    
    41,725,000
    
    
    
    46,706,000
    
    
    
    46,552,000
    
    
    
    38,417,00051,403,000
    
    
    
    59,085,000
    
    
    
    65,543,000
    
    
    
    68,132,000
    
    
    
    62,574,000Non-Real Estate:Commercial Assets
    
    
    8,221,000
    
    
    
    6,386,000
    
    
    
    7,049,000
    
    
    
    9,303,000
    
    
    
    9,758,000Consumer Assets
    
    
    161,000
    
    
    
    5,000
    
    
    
    0
    
    
    
    8,000
    
    
    
    8,0008,382,000
    
    
    
    6,391,000
    
    
    
    7,049,000
    
    
    
    9,311,000
    
    
    
    9,766,000Total
    
    $
    86,119,000
    
    
    $
    92,397,000
    
    
    $
    110,533,000
    
    
    $
    117,557,000
    
    
    $
    111,658,000
 F-11




---



##### Table of Contents



Whole4th Qtr
    
    
    3rd Qtr
    
    
    2nd Qtr
    
    
    1st Qtr
    
    
    Year2010
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Residential Real Estate:Land Development
    
    $
    312,000
    
    
    $
    2,115,000
    
    
    $
    1,254,000
    
    
    $
    565,000
    
    
    $
    4,246,000Construction
    
    
    173,000
    
    
    
    93,000
    
    
    
    649,000
    
    
    
    587,000
    
    
    
    1,502,000Owner Occupied / Rental
    
    
    120,000
    
    
    
    1,212,000
    
    
    
    407,000
    
    
    
    326,000
    
    
    
    2,065,000605,000
    
    
    
    3,420,000
    
    
    
    2,310,000
    
    
    
    1,478,000
    
    
    
    7,813,000Commercial Real Estate:Land Development
    
    
    219,000
    
    
    
    360,000
    
    
    
    674,000
    
    
    
    617,000
    
    
    
    1,870,000Construction
    
    
    0
    
    
    
    0
    
    
    
    660,000
    
    
    
    0
    
    
    
    660,000Owner Occupied
    
    
    976,000
    
    
    
    2,159,000
    
    
    
    726,000
    
    
    
    1,091,000
    
    
    
    4,952,000Non-Owner Occupied
    
    
    2,642,000
    
    
    
    6,805,000
    
    
    
    2,551,000
    
    
    
    1,945,000
    
    
    
    13,943,0003,837,000
    
    
    
    9,324,000
    
    
    
    4,611,000
    
    
    
    3,653,000
    
    
    
    21,425,000Non-Real Estate:Commercial Assets
    
    
    819,000
    
    
    
    1,517,000
    
    
    
    1,670,000
    
    
    
    1,012,000
    
    
    
    5,018,000Consumer Assets
    
    
    47,000
    
    
    
    1,000
    
    
    
    (3,000
    )
    
    
    9,000
    
    
    
    54,000866,000
    
    
    
    1,518,000
    
    
    
    1,667,000
    
    
    
    1,021,000
    
    
    
    5,072,000Total
    
    $
    5,308,000
    
    
    $
    14,262,000
    
    
    $
    8,588,000
    
    
    $
    6,152,000
    
    
    $
    34,310,000
  12/31/10
    
    
    12/31/09
    
    
    12/31/08
    
    
    12/31/07
    
    
    12/31/06Past due 90 days or more and
accruing interest
    
    $
    766,000
    
    
    $
    243,000
    
    
    $
    1,358,000
    
    
    $
    977,000
    
    
    $
    819,000Nonaccrual, including troubled
debt restructurings
    
    
    63,915,000
    
    
    
    81,818,000
    
    
    
    47,945,000
    
    
    
    28,832,000
    
    
    
    7,752,000Troubled debt restructurings,
accruing interest
    
    
    4,763,000
    
    
    
    2,989,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    69,444,000
    
    
    $
    85,050,000
    
    
    $
    49,303,000
    
    
    $
    29,809,000
    
    
    $
    8,571,000
 F-12




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Loans and leases outstanding at year-end
    
    $
    1,262,630,000
    
    
    $
    1,539,818,000
    
    
    $
    1,856,915,000
    
    
    $
    1,799,880,000
    
    
    $
    1,745,478,000Daily average balance of loans and leases
outstanding during the year
    
    $
    1,412,555,000
    
    
    $
    1,704,335,000
    
    
    $
    1,829,686,000
    
    
    $
    1,765,465,000
    
    
    $
    1,660,284,000Balance of allowance at beginning of year
    
    $
    47,878,000
    
    
    $
    27,108,000
    
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000Loans and leases charged-off:Commercial, financial and agricultural
    
    
    (25,498,000
    )
    
    
    (25,858,000
    )
    
    
    (12,566,000
    )
    
    
    (4,232,000
    )
    
    
    (5,208,000
    )Construction and land development
    
    
    (9,273,000
    )
    
    
    (9,606,000
    )
    
    
    (4,835,000
    )
    
    
    (1,353,000
    )
    
    
    0Leases
    
    
    (41,000
    )
    
    
    (120,000
    )
    
    
    (174,000
    )
    
    
    (18,000
    )
    
    
    0Residential real estate
    
    
    (2,242,000
    )
    
    
    (3,797,000
    )
    
    
    (2,900,000
    )
    
    
    (1,618,000
    )
    
    
    (50,000
    )Instalment loans to individuals
    
    
    (74,000
    )
    
    
    (240,000
    )
    
    
    (119,000
    )
    
    
    (53,000
    )
    
    
    (131,000
    )Total charge-offs
    
    
    (37,128,000
    )
    
    
    (39,621,000
    )
    
    
    (20,594,000
    )
    
    
    (7,274,000
    )
    
    
    (5,389,000
    )Recoveries of previously charged-off
loans and leases:Commercial, financial and agricultural
    
    
    1,599,000
    
    
    
    1,141,000
    
    
    
    597,000
    
    
    
    586,000
    
    
    
    487,000Construction and land development
    
    
    995,000
    
    
    
    81,000
    
    
    
    8,000
    
    
    
    11,000
    
    
    
    0Leases
    
    
    38,000
    
    
    
    4,000
    
    
    
    6,000
    
    
    
    0
    
    
    
    0Residential real estate
    
    
    178,000
    
    
    
    150,000
    
    
    
    51,000
    
    
    
    3,000
    
    
    
    2,000Instalment loans to individuals
    
    
    8,000
    
    
    
    15,000
    
    
    
    26,000
    
    
    
    7,000
    
    
    
    9,000Total recoveries
    
    
    2,818,000
    
    
    
    1,391,000
    
    
    
    688,000
    
    
    
    607,000
    
    
    
    498,000Net loan and lease charge-offs
    
    
    (34,310,000
    )
    
    
    (38,230,000
    )
    
    
    (19,906,000
    )
    
    
    (6,667,000
    )
    
    
    (4,891,000
    )Provision for loan and lease losses
    
    
    31,800,000
    
    
    
    59,000,000
    
    
    
    21,200,000
    
    
    
    11,070,000
    
    
    
    5,775,000Balance of allowance at year-end
    
    $
    45,368,000
    
    
    $
    47,878,000
    
    
    $
    27,108,000
    
    
    $
    25,814,000
    
    
    $
    21,411,000Ratio of net loan and lease charge-offs
during the year to average loans and leases
outstanding during the year
    
    
    (2.43
    %)
    
    
    (2.24
    %)
    
    
    (1.09
    %)
    
    
    (0.38
    %)
    
    
    (0.29
    %)Ratio of allowance to loans and leases
outstanding at year-end
    
    
    3.59
    %
    
    
    3.11
    %
    
    
    1.46
    %
    
    
    1.43
    %
    
    
    1.23
    %
 F-13




---



##### Table of Contents



12/31/2010
    
    
    12/31/2009
    
    
    12/31/2008
    
    
    12/31/2007
    
    
    12/31/2006Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    LoanAmount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    PortfolioCommercial,
financial and
agricultural
    
    $
    32,624
    
    
    
    81.5
    %
    
    $
    37,590
    
    
    
    80.0
    %
    
    $
    20,170
    
    
    
    77.9
    %
    
    $
    18,947
    
    
    
    77.4
    %
    
    $
    15,706
    
    
    
    74.7
    %Construction and
land development
    
    
    7,019
    
    
    
    9.3
    
    
    
    6,566
    
    
    
    11.4
    
    
    
    5,137
    
    
    
    14.1
    
    
    
    4,907
    
    
    
    14.7
    
    
    
    3,975
    
    
    
    17.1Leases
    
    
    21
    
    
    
    0.0
    
    
    
    49
    
    
    
    0.1
    
    
    
    41
    
    
    
    0.1
    
    
    
    29
    
    
    
    0.1
    
    
    
    15
    
    
    
    0.1Residential real
estate
    
    
    5,495
    
    
    
    8.8
    
    
    
    3,517
    
    
    
    8.1
    
    
    
    1,656
    
    
    
    7.6
    
    
    
    1,829
    
    
    
    7.5
    
    
    
    1,591
    
    
    
    7.6Instalment loans to
individuals
    
    
    172
    
    
    
    0.4
    
    
    
    156
    
    
    
    0.4
    
    
    
    104
    
    
    
    0.3
    
    
    
    102
    
    
    
    0.3
    
    
    
    124
    
    
    
    0.5Unallocated
    
    
    37
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0Total
    
    $
    45,368
    
    
    
    100.0
    %
    
    $
    47,878
    
    
    
    100.0
    %
    
    $
    27,108
    
    
    
    100.0
    %
    
    $
    25,814
    
    
    
    100.0
    %
    
    $
    21,411
    
    
    
    100.0
    %
   F-14




---



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F-15




---



##### Table of Contents



12/31/10
    
    
    12/31/09
    
    
    12/31/08Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Percent
    
    
    Value
    
    
    Percent
    
    
    Value
    
    
    PercentU.S. Government agency
debt obligations
    
    $
    121,562,000
    
    
    
    55.1
    %
    
    $
    95,544,000
    
    
    
    39.6
    %
    
    $
    62,382,000
    
    
    
    27.5
    %Mortgage-backed
securities
    
    
    46,941,000
    
    
    
    21.2
    
    
    
    64,982,000
    
    
    
    26.9
    
    
    
    77,026,000
    
    
    
    33.9Michigan Strategic
Fund bonds
    
    
    18,175,000
    
    
    
    8.2
    
    
    
    20,550,000
    
    
    
    8.5
    
    
    
    22,105,000
    
    
    
    9.7Municipal general
obligations
    
    
    28,042,000
    
    
    
    12.7
    
    
    
    49,892,000
    
    
    
    20.6
    
    
    
    54,066,000
    
    
    
    23.8Municipal revenue bonds
    
    
    4,843,000
    
    
    
    2.2
    
    
    
    9,319,000
    
    
    
    3.9
    
    
    
    10,371,000
    
    
    
    4.6Mutual funds
    
    
    1,267,000
    
    
    
    0.6
    
    
    
    1,416,000
    
    
    
    0.5
    
    
    
    1,156,000
    
    
    
    0.5Totals
    
    $
    220,830,000
    
    
    
    100.0
    %
    
    $
    241,703,000
    
    
    
    100.0
    %
    
    $
    227,106,000
    
    
    
    100.0
    %
   F-16




---



##### Table of Contents



Carrying
    
    
    AverageValue
    
    
    YieldObligations of U.S. Government agencies:One year or less
    
    $
    0
    
    
    NAOver one through five years
    
    
    3,321,000
    
    
    
    4.96
    %Over five through ten years
    
    
    19,828,000
    
    
    
    3.80Over ten years
    
    
    98,413,000
    
    
    
    4.29121,562,000
    
    
    
    4.23Obligations of states and political subdivisions:One year or less
    
    
    0
    
    
    NAOver one through five years
    
    
    2,495,000
    
    
    
    6.82Over five through ten years
    
    
    1,420,000
    
    
    
    6.21Over ten years
    
    
    28,970,000
    
    
    
    6.2032,885,000
    
    
    
    6.24Mortgage-backed securities
    
    
    46,941,000
    
    
    
    5.14Michigan Strategic Fund bonds
    
    
    18,175,000
    
    
    
    3.04Mutual funds
    
    
    1,267,000
    
    
    
    3.08Totals
    
    $
    220,830,000
    
    
    
    4.62
    %
  F-17




---



##### Table of Contents



Non-Earning Assets
    Source of Funds
   F-18




---



##### Table of Contents



F-19




---



##### Table of Contents



RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2010 and 2009
 Summary
     2010
    
    2009Return on average assets
    
    
    (0.80
    %)
    
    
    (2.51
    %)Return on average shareholders equity
    
    
    (10.62
    %)
    
    
    (29.91
    %)Average shareholders equity to average assets
    
    
    7.56
    %
    
    
    8.40
    %
 Net Interest Income
  F-20




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F-21




---



##### Table of Contents



Years ended December 31,2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateTaxable securities
    
    $
    176,084
    
    
    $
    7,846
    
    
    
    4.46
    %
    
    $
    155,041
    
    
    $
    7,498
    
    
    
    4.84
    %
    
    $
    148,347
    
    
    $
    7,888
    
    
    
    5.32
    %Tax-exempt
securities
    
    
    59,911
    
    
    
    3,125
    
    
    
    5.22
    
    
    
    83,048
    
    
    
    4,623
    
    
    
    5.57
    
    
    
    69,178
    
    
    
    4,180
    
    
    
    6.04Total securities
    
    
    235,995
    
    
    
    10,971
    
    
    
    4.65
    
    
    
    238,089
    
    
    
    12,121
    
    
    
    5.09
    
    
    
    217,525
    
    
    
    12,068
    
    
    
    5.55Loans and leases
    
    
    1,412,555
    
    
    
    77,791
    
    
    
    5.51
    
    
    
    1,704,335
    
    
    
    93,903
    
    
    
    5.51
    
    
    
    1,829,686
    
    
    
    110,013
    
    
    
    6.01Short-term
investments
    
    
    9,251
    
    
    
    39
    
    
    
    0.42
    
    
    
    6,730
    
    
    
    21
    
    
    
    0.31
    
    
    
    392
    
    
    
    7
    
    
    
    1.79Federal funds sold
    
    
    69,319
    
    
    
    176
    
    
    
    0.25
    
    
    
    53,825
    
    
    
    136
    
    
    
    0.25
    
    
    
    11,353
    
    
    
    204
    
    
    
    1.80Total earning
assets
    
    
    1,727,120
    
    
    
    88,977
    
    
    
    5.15
    
    
    
    2,002,979
    
    
    
    106,181
    
    
    
    5.30
    
    
    
    2,058,956
    
    
    
    122,292
    
    
    
    5.94Allowance for loan
and lease losses
    
    
    (48,963
    )
    
    
    
    
    
    
    
    
    
    
    (34,155
    )
    
    
    
    
    
    
    
    
    
    
    (30,184
    )Cash and due
from banks
    
    
    15,414
    
    
    
    
    
    
    
    
    
    
    
    16,341
    
    
    
    
    
    
    
    
    
    
    
    21,004Other non-earning
assets
    
    
    127,354
    
    
    
    
    
    
    
    
    
    
    
    120,508
    
    
    
    
    
    
    
    
    
    
    
    107,546Total assets
    
    $
    1,820,925
    
    
    
    
    
    
    
    
    
    
    $
    2,105,673
    
    
    
    
    
    
    
    
    
    
    $
    2,157,322Interest-bearing
demand deposits
    
    $
    140,384
    
    
    $
    2,419
    
    
    
    1.72
    %
    
    $
    60,155
    
    
    $
    867
    
    
    
    1.44
    %
    
    $
    42,734
    
    
    $
    492
    
    
    
    1.15
    %Savings deposits
    
    
    43,571
    
    
    
    305
    
    
    
    0.70
    
    
    
    48,182
    
    
    
    521
    
    
    
    1.08
    
    
    
    65,091
    
    
    
    922
    
    
    
    1.42Money market
accounts
    
    
    86,283
    
    
    
    1,225
    
    
    
    1.42
    
    
    
    25,759
    
    
    
    361
    
    
    
    1.40
    
    
    
    13,948
    
    
    
    192
    
    
    
    1.38Time deposits
    
    
    979,584
    
    
    
    19,580
    
    
    
    2.00
    
    
    
    1,279,188
    
    
    
    39,520
    
    
    
    3.09
    
    
    
    1,332,071
    
    
    
    58,206
    
    
    
    4.37Total interest-
bearing deposits
    
    
    1,249,822
    
    
    
    23,529
    
    
    
    1.88
    
    
    
    1,413,284
    
    
    
    41,269
    
    
    
    2.92
    
    
    
    1,453,844
    
    
    
    59,812
    
    
    
    4.11Short-term
borrowings
    
    
    107,802
    
    
    
    1,410
    
    
    
    1.31
    
    
    
    98,513
    
    
    
    1,845
    
    
    
    1.87
    
    
    
    97,313
    
    
    
    2,021
    
    
    
    2.08Federal Home Loan
Bank advances
    
    
    153,575
    
    
    
    5,509
    
    
    
    3.59
    
    
    
    239,699
    
    
    
    8,808
    
    
    
    3.67
    
    
    
    258,939
    
    
    
    10,554
    
    
    
    4.08Other borrowings
    
    
    47,315
    
    
    
    1,346
    
    
    
    2.84
    
    
    
    50,278
    
    
    
    1,654
    
    
    
    3.29
    
    
    
    46,579
    
    
    
    2,476
    
    
    
    5.32Total interest-
bearing liabilities
    
    
    1,558,514
    
    
    
    31,794
    
    
    
    2.04
    
    
    
    1,801,774
    
    
    
    53,576
    
    
    
    2.97
    
    
    
    1,856,675
    
    
    
    74,863
    
    
    
    4.03Demand deposits
    
    
    118,904
    
    
    
    
    
    
    
    
    
    
    
    112,821
    
    
    
    
    
    
    
    
    
    
    
    108,584Other liabilities
    
    
    5,913
    
    
    
    
    
    
    
    
    
    
    
    14,258
    
    
    
    
    
    
    
    
    
    
    
    19,286Total liabilities
    
    
    1,683,331
    
    
    
    
    
    
    
    
    
    
    
    1,928,853
    
    
    
    
    
    
    
    
    
    
    
    1,984,545Average equity
    
    
    137,594
    
    
    
    
    
    
    
    
    
    
    
    176,820
    
    
    
    
    
    
    
    
    
    
    
    172,777Total liabilities
and equity
    
    $
    1,820,925
    
    
    
    
    
    
    
    
    
    
    $
    2,105,673
    
    
    
    
    
    
    
    
    
    
    $
    2,157,322Net interest
income
    
    
    
    
    
    $
    57,183
    
    
    
    
    
    
    
    
    
    
    $
    52,605
    
    
    
    
    
    
    
    
    
    
    $
    47,429Rate spread
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    1.91
    %Net interest
margin
    
    
    
    
    
    
    
    
    
    
    3.31
    %
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    2.30
    %
 F-22




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##### Table of Contents



Years ended December 31,2010 over 2009
    
    
    2009 over 2008Total
    
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    RateIncrease (decrease) in interest incomeTaxable securities
    
    $
    348,000
    
    
    $
    967,000
    
    
    $
    (619,000
    )
    
    $
    (390,000
    )
    
    $
    345,000
    
    
    $
    (735,000
    )Tax exempt securities
    
    
    (1,498,000
    )
    
    
    (1,222,000
    )
    
    
    (276,000
    )
    
    
    443,000
    
    
    
    791,000
    
    
    
    (348,000
    )Loans
    
    
    (16,112,000
    )
    
    
    (16,069,000
    )
    
    
    (43,000
    )
    
    
    (16,110,000
    )
    
    
    (7,253,000
    )
    
    
    (8,857,000
    )Short-term investments
    
    
    18,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    14,000
    
    
    
    24,000
    
    
    
    (10,000
    )Federal funds sold
    
    
    40,000
    
    
    
    40,000
    
    
    
    0
    
    
    
    (68,000
    )
    
    
    230,000
    
    
    
    (298,000
    )Net change in tax-equivalent
interest income
    
    
    (17,204,000
    )
    
    
    (16,275,000
    )
    
    
    (929,000
    )
    
    
    (16,111,000
    )
    
    
    (5,863,000
    )
    
    
    (10,248,000
    )Increase (decrease) in interest expenseInterest-bearing demand deposits
    
    
    1,552,000
    
    
    
    1,354,000
    
    
    
    198,000
    
    
    
    375,000
    
    
    
    232,000
    
    
    
    143,000Savings deposits
    
    
    (216,000
    )
    
    
    (46,000
    )
    
    
    (170,000
    )
    
    
    (401,000
    )
    
    
    (210,000
    )
    
    
    (191,000
    )Money market accounts
    
    
    864,000
    
    
    
    859,000
    
    
    
    5,000
    
    
    
    169,000
    
    
    
    165,000
    
    
    
    4,000Time deposits
    
    
    (19,940,000
    )
    
    
    (7,953,000
    )
    
    
    (11,987,000
    )
    
    
    (18,686,000
    )
    
    
    (2,230,000
    )
    
    
    (16,456,000
    )Short-term borrowings
    
    
    (435,000
    )
    
    
    162,000
    
    
    
    (597,000
    )
    
    
    (176,000
    )
    
    
    25,000
    
    
    
    (201,000
    )Federal Home Loan Bank
advances
    
    
    (3,299,000
    )
    
    
    (3,094,000
    )
    
    
    (205,000
    )
    
    
    (1,746,000
    )
    
    
    (751,000
    )
    
    
    (995,000
    )Other borrowings
    
    
    (308,000
    )
    
    
    (93,000
    )
    
    
    (215,000
    )
    
    
    (822,000
    )
    
    
    184,000
    
    
    
    (1,006,000
    )Net change in interest
expense
    
    
    (21,782,000
    )
    
    
    (8,811,000
    )
    
    
    (12,971,000
    )
    
    
    (21,287,000
    )
    
    
    (2,585,000
    )
    
    
    (18,702,000
    )Net change in tax-equivalent
net interest income
    
    $
    4,578,000
    
    
    $
    (7,464,000
    )
    
    $
    12,042,000
    
    
    $
    5,176,000
    
    
    $
    (3,278,000
    )
    
    $
    8,454,000
    F-23




---



##### Table of Contents



Provision for Loan and Lease Losses
   F-24




---



##### Table of Contents



Noninterest Income
  Noninterest Expense
    Federal Income Tax Expense
   F-25




---



##### Table of Contents



RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 Summary
    2009
    
    2008Return on average assets
    
    
    (2.51
    %)
    
    
    (0.23
    %)Return on average shareholders equity
    
    
    (29.91
    %)
    
    
    (2.87
    %)Average shareholders equity to average assets
    
    
    8.40
    %
    
    
    8.01
    %
 Net Interest Income
     F-26




---



##### Table of Contents



F-27




---



##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Noninterest Expense
   Federal Income Tax Expense
  F-28




---



##### Table of Contents



CAPITAL RESOURCES
    F-29




---



##### Table of Contents



LIQUIDITY
     F-30




---



##### Table of Contents



Outstanding balance at December 31, 2010
    
    $
    116,979,000Weighted average interest rate at December 31, 2010
    
    
    0.69
    %Maximum daily balance for twelve months ended December 31, 2010
    
    $
    133,280,000Average daily balance for twelve months ended December 31, 2010
    
    $
    107,781,000Weighted average interest rate for twelve months ended December 31, 2010
    
    
    1.31
    %
     One Year
    
    One to
    
    Three to
    
    Overor Less
    
    Three Years
    
    Five Years
    
    Five Years
    
    TotalDeposits without a stated maturity
    
    $
    481,953,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    481,953,000Certificates of deposit
    
    
    495,914,000
    
    
    
    250,469,000
    
    
    
    45,496,000
    
    
    
    0
    
    
    
    791,879,000Short-term borrowings
    
    
    116,979,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    116,979,000Federal Home Loan Bank
advances
    
    
    10,000,000
    
    
    
    50,000,000
    
    
    
    5,000,000
    
    
    
    0
    
    
    
    65,000,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    10,000,000
    
    
    
    0
    
    
    
    0
    
    
    
    1,804,000
    
    
    
    11,804,000
 F-31




---



##### Table of Contents



12/31/10
    
    
    12/31/09
    
    
    12/31/08Commercial unused lines of credit
    
    $
    158,945,000
    
    
    $
    205,018,000
    
    
    $
    323,785,000Unused lines of credit secured by 1-4 family
residential properties
    
    
    26,870,000
    
    
    
    24,916,000
    
    
    
    30,658,000Credit card unused lines of credit
    
    
    7,768,000
    
    
    
    8,565,000
    
    
    
    9,413,000Other consumer unused lines of credit
    
    
    4,052,000
    
    
    
    4,526,000
    
    
    
    4,881,000Commitments to make loans
    
    
    9,840,000
    
    
    
    7,701,000
    
    
    
    10,959,000Standby letters of credit
    
    
    19,343,000
    
    
    
    36,512,000
    
    
    
    51,439,000Total
    
    $
    226,818,000
    
    
    $
    287,238,000
    
    
    $
    431,135,000
  MARKET RISK ANALYSIS
   F-32




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##### Table of Contents



Within
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Commercial loans (1)
    
    $
    332,181,000
    
    
    $
    241,803,000
    
    
    $
    553,610,000
    
    
    $
    19,145,000
    
    
    $
    1,146,739,000Leases
    
    
    13,000
    
    
    
    119,000
    
    
    
    262,000
    
    
    
    0
    
    
    
    394,000Residential real estate loans
    
    
    42,176,000
    
    
    
    6,708,000
    
    
    
    51,674,000
    
    
    
    9,956,000
    
    
    
    110,514,000Consumer loans
    
    
    2,280,000
    
    
    
    268,000
    
    
    
    2,318,000
    
    
    
    117,000
    
    
    
    4,983,000Securities (2)
    
    
    33,787,000
    
    
    
    0
    
    
    
    49,318,000
    
    
    
    152,070,000
    
    
    
    235,175,000Federal funds sold
    
    
    47,924,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    47,924,000Short-term investments
    
    
    9,600,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    9,600,000Allowance for loan and
lease losses
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (45,368,000
    )Other assets
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    122,460,000Total assets
    
    
    467,961,000
    
    
    
    248,898,000
    
    
    
    657,182,000
    
    
    
    181,288,000
    
    
    $
    1,632,421,000Liabilities:Interest-bearing checking
    
    
    158,177,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    158,177,000Savings deposits
    
    
    60,201,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    60,201,000Money market accounts
    
    
    150,631,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    150,631,000Time deposits under $100,000
    
    
    35,930,000
    
    
    
    38,423,000
    
    
    
    38,757,000
    
    
    
    0
    
    
    
    113,110,000Time deposits $100,000 & over
    
    
    184,283,000
    
    
    
    237,278,000
    
    
    
    257,208,000
    
    
    
    0
    
    
    
    678,769,000Short-term borrowings
    
    
    116,979,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    116,979,000Federal Home Loan Bank advances
    
    
    0
    
    
    
    10,000,000
    
    
    
    55,000,000
    
    
    
    0
    
    
    
    65,000,000Other borrowed money
    
    
    34,794,000
    
    
    
    10,000,000
    
    
    
    0
    
    
    
    0
    
    
    
    44,794,000Noninterest-bearing checking
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    112,944,000Other liabilities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,880,000Total liabilities
    
    
    740,995,000
    
    
    
    295,701,000
    
    
    
    350,965,000
    
    
    
    0
    
    
    
    1,506,485,000Shareholders equity
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    125,936,000Total liabilities & shareholders
equity
    
    
    740,995,000
    
    
    
    295,701,000
    
    
    
    350,965,000
    
    
    
    0
    
    
    $
    1,632,421,000Net asset (liability) GAP
    
    $
    (273,034,000
    )
    
    $
    (46,803,000
    )
    
    $
    306,217,000
    
    
    $
    181,288,000Cumulative GAP
    
    $
    (273,034,000
    )
    
    $
    (319,837,000
    )
    
    $
    (13,620,000
    )
    
    $
    167,668,000Percent of cumulative GAP to
total assets
    
    
    (16.7
    %)
    
    
    (19.6
    %)
    
    
    (0.8
    %)
    
    
    10.3
    %
 
 (1)
    
    Floating rate loans that are currently at 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, 2010. F-33




---



##### Table of Contents



Dollar Change
    
    Percent ChangeIn Net
    
    In NetInterest Rate Scenario
    
    Interest Income
    
    Interest IncomeInterest rates down 400 basis points
    
    $
    585,000
    
    
    
    1.1
    %Interest rates down 300 basis points
    
    
    1,125,000
    
    
    
    2.1Interest rates down 200 basis points
    
    
    1,645,000
    
    
    
    3.0Interest rates down 100 basis points
    
    
    2,105,000
    
    
    
    3.9No change in interest rates
    
    
    2,590,000
    
    
    
    4.8Interest rates up 100 basis points
    
    
    905,000
    
    
    
    1.7Interest rates up 200 basis points
    
    
    645,000
    
    
    
    1.2Interest rates up 300 basis points
    
    
    1,555,000
    
    
    
    2.9Interest rates up 400 basis points
    
    
    1,190,000
    
    
    
    2.2
   F-34




---



##### Table of Contents



Internal Control  Integrated Framework
 /s/ BDO USA, LLPBDO USA, LLP 
 F-35




---



##### Table of Contents



Internal Control  Integrated Framework
      /s/ BDO USA, LLPBDO USA, LLP 
 F-36




---



##### 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-37




---



##### Table of Contents



2010
    
    
    2009ASSETSCash and due from banks
    
    $
    6,674,000
    
    
    $
    18,896,000Short-term investments
    
    
    9,600,000
    
    
    
    1,471,000Federal funds sold
    
    
    47,924,000
    
    
    
    1,368,000Total cash and cash equivalents
    
    
    64,198,000
    
    
    
    21,735,000Securities available for sale
    
    
    220,830,000
    
    
    
    182,492,000Securities held to maturity
(fair value of $60,271,000 at December 31, 2009)
    
    
    0
    
    
    
    59,211,000Federal Home Loan Bank stock
    
    
    14,345,000
    
    
    
    15,681,000Loans and leases
    
    
    1,262,630,000
    
    
    
    1,539,818,000Allowance for loan and lease losses
    
    
    (45,368,000
    )
    
    
    (47,878,000
    )Loans and leases, net
    
    
    1,217,262,000
    
    
    
    1,491,940,000Premises and equipment, net
    
    
    27,873,000
    
    
    
    29,684,000Bank owned life insurance
    
    
    46,743,000
    
    
    
    45,024,000Accrued interest receivable
    
    
    5,942,000
    
    
    
    7,088,000Other real estate owned and repossessed assets
    
    
    16,675,000
    
    
    
    26,608,000Other assets
    
    
    18,553,000
    
    
    
    26,745,000Total assets
    
    $
    1,632,421,000
    
    
    $
    1,906,208,000LIABILITIES AND SHAREHOLDERS EQUITYDepositsNoninterest-bearing
    
    $
    112,944,000
    
    
    $
    121,157,000Interest-bearing
    
    
    1,160,888,000
    
    
    
    1,280,470,000Total
    
    
    1,273,832,000
    
    
    
    1,401,627,000Securities sold under agreements to repurchase
    
    
    116,979,000
    
    
    
    99,755,000Federal funds purchased
    
    
    0
    
    
    
    2,600,000Federal Home Loan Bank advances
    
    
    65,000,000
    
    
    
    205,000,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    11,804,000
    
    
    
    16,890,000Accrued interest and other liabilities
    
    
    5,880,000
    
    
    
    7,242,000Total liabilities
    
    
    1,506,485,000
    
    
    
    1,766,104,000Shareholders equityPreferred stock, no par value; 1,000,000 shares
authorized;
21,000 shares outstanding
    
    
    20,077,000
    
    
    
    19,839,000Common stock, no par value; 20,000,000 shares
authorized; 8,597,993 shares outstanding at
December 31, 2010 and 8,592,514 shares
outstanding at December 31, 2009
    
    
    172,677,000
    
    
    
    172,438,000Common stock warrant
    
    
    1,138,000
    
    
    
    1,138,000Retained earnings (deficit)
    
    
    (68,781,000
    )
    
    
    (54,170,000
    )Accumulated other comprehensive income
    
    
    825,000
    
    
    
    859,000Total shareholders equity
    
    
    125,936,000
    
    
    
    140,104,000Total liabilities and shareholders equity
    
    $
    1,632,421,000
    
    
    $
    1,906,208,000
  F-38




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Interest incomeLoans and leases, including fees
    
    $
    77,791,000
    
    
    $
    93,903,000
    
    
    $
    110,013,000Securities, taxable
    
    
    7,846,000
    
    
    
    7,498,000
    
    
    
    7,888,000Securities, tax-exempt
    
    
    2,291,000
    
    
    
    3,351,000
    
    
    
    2,960,000Federal funds sold
    
    
    176,000
    
    
    
    136,000
    
    
    
    204,000Short-term investments
    
    
    39,000
    
    
    
    21,000
    
    
    
    7,000Total interest income
    
    
    88,143,000
    
    
    
    104,909,000
    
    
    
    121,072,000Interest expenseDeposits
    
    
    23,529,000
    
    
    
    41,269,000
    
    
    
    59,812,000Short-term borrowings
    
    
    1,410,000
    
    
    
    1,845,000
    
    
    
    2,021,000Federal Home Loan Bank advances
    
    
    5,509,000
    
    
    
    8,808,000
    
    
    
    10,554,000Other borrowings
    
    
    1,346,000
    
    
    
    1,654,000
    
    
    
    2,476,000Total interest expense
    
    
    31,794,000
    
    
    
    53,576,000
    
    
    
    74,863,000Net interest income
    
    
    56,349,000
    
    
    
    51,333,000
    
    
    
    46,209,000Provision for loan and lease losses
    
    
    31,800,000
    
    
    
    59,000,000
    
    
    
    21,200,000Net interest income (deficiency) after provision
for loan and lease losses
    
    
    24,549,000
    
    
    
    (7,667,000
    )
    
    
    25,009,000Noninterest incomeService charges on accounts
    
    
    1,797,000
    
    
    
    2,023,000
    
    
    
    1,994,000Earnings on bank owned life insurance
    
    
    1,718,000
    
    
    
    1,444,000
    
    
    
    1,727,000Rental income from other real estate owned
    
    
    1,488,000
    
    
    
    438,000
    
    
    
    27,000Mortgage banking activities
    
    
    1,092,000
    
    
    
    1,202,000
    
    
    
    662,000Credit and debit card fees
    
    
    727,000
    
    
    
    670,000
    
    
    
    745,000Letter of credit fees
    
    
    460,000
    
    
    
    541,000
    
    
    
    687,000Net gain on sale of securities
    
    
    476,000
    
    
    
    0
    
    
    
    0Gain on sale of commercial loans
    
    
    324,000
    
    
    
    0
    
    
    
    0Other income
    
    
    1,162,000
    
    
    
    1,240,000
    
    
    
    1,440,000Total noninterest income
    
    
    9,244,000
    
    
    
    7,558,000
    
    
    
    7,282,000Noninterest expenseSalaries and benefits
    
    
    18,297,000
    
    
    
    20,331,000
    
    
    
    22,493,000Occupancy
    
    
    2,838,000
    
    
    
    3,377,000
    
    
    
    3,826,000Furniture and equipment rent, depreciation and maintenance
    
    
    1,481,000
    
    
    
    1,871,000
    
    
    
    1,980,000Nonperforming asset costs
    
    
    10,858,000
    
    
    
    7,294,000
    
    
    
    3,266,000FDIC insurance costs
    
    
    4,370,000
    
    
    
    4,852,000
    
    
    
    1,890,000Data processing
    
    
    2,598,000
    
    
    
    2,526,000
    
    
    
    2,394,000Branch consolidation costs
    
    
    0
    
    
    
    1,308,000
    
    
    
    0Advertising
    
    
    906,000
    
    
    
    650,000
    
    
    
    559,000FHLB advance prepayment fees
    
    
    1,021,000
    
    
    
    0
    
    
    
    0Other expense
    
    
    4,787,000
    
    
    
    4,279,000
    
    
    
    5,718,000Total noninterest expenses
    
    
    47,156,000
    
    
    
    46,488,000
    
    
    
    42,126,000Income (loss) before federal income tax expense (benefit)
    
    
    (13,363,000
    )
    
    
    (46,597,000
    )
    
    
    (9,835,000
    )Federal income tax expense (benefit)
    
    
    (47,000
    )
    
    
    5,490,000
    
    
    
    (4,876,000
    )Net income (loss)
    
    
    (13,316,000
    )
    
    
    (52,087,000
    )
    
    
    (4,959,000
    )Preferred stock dividends and accretion
    
    
    1,295,000
    
    
    
    802,000
    
    
    
    0Net income (loss) attributable to common shares
    
    $
    (14,611,000
    )
    
    $
    (52,889,000
    )
    
    $
    (4,959,000
    )
  F-39




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Earnings (loss) per share:Basic
    
    $
    (1.72
    )
    
    $
    (6.23
    )
    
    $
    (0.59
    )Diluted
    
    $
    (1.72
    )
    
    $
    (6.23
    )
    
    $
    (0.59
    )
  F-40




---



##### Table of Contents



AccumulatedCommon
    
    
    Retained
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Stock
    
    
    Earnings
    
    
    Comprehensive
    
    
    Shareholders($ in thousands)
    
    Stock
    
    
    Stock
    
    
    Warrant
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalances, January 1, 2008
    
    $
    0
    
    
    $
    172,938
    
    
    $
    0
    
    
    $
    4,948
    
    
    $
    269
    
    
    $
    178,155Employee stock purchase plan
(10,904 shares)
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Dividend reinvestment plan
(4,340 shares)
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Stock option exercises
(2,000 shares)
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Stock tendered for stock option exercises
(1,123 shares)
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Stock-based compensation expense
    
    
    
    
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    654Cash dividends
($0.31 per common share)
    
    
    
    
    
    
    (1,355
    )
    
    
    
    
    
    
    (1,270
    )
    
    
    
    
    
    
    (2,625
    )Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,959
    )
    
    
    
    
    
    
    (4,959
    )Change in net unrealized gain (loss)
on securities available for sale,
net of reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,795
    
    
    
    1,795Change in net fair value of interest rate
swaps, net of reclassifications and
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,236
    
    
    
    1,236Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,928
    )Balances, December 31, 2008
    
    $
    0
    
    
    $
    172,353
    
    
    $
    0
    
    
    $
    (1,281
    )
    
    $
    3,300
    
    
    $
    174,372
  F-41




---



##### Table of Contents



AccumulatedCommon
    
    
    Retained
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Stock
    
    
    Earnings
    
    
    Comprehensive
    
    
    Shareholders($ in thousands)
    
    Stock
    
    
    Stock
    
    
    Warrant
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalances, January 1, 2009
    
    $
    0
    
    
    $
    172,353
    
    
    $
    0
    
    
    $
    (1,281
    )
    
    $
    3,300
    
    
    $
    174,372Preferred stock issued, net
    
    
    19,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,696Accretion of preferred stock
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    0Common stock warrant issued
    
    
    
    
    
    
    
    
    
    
    1,138
    
    
    
    
    
    
    
    
    
    
    
    1,138Employee stock purchase plan
(14,694 shares)
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Dividend reinvestment plan
(2,875 shares)
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Stock-based compensation expense
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    611Cash dividends
($0.07 per common share)
    
    
    
    
    
    
    (594
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (594
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (659
    )
    
    
    
    
    
    
    (659
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,087
    )
    
    
    
    
    
    
    (52,087
    )Change in net unrealized gain (loss)
on securities available for sale,
net of reclassifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,269
    )
    
    
    (1,269
    )Reclassification of unrealized gain on
interest rate swaps, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,172
    )
    
    
    (1,172
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,528
    )Balances, December 31, 2009
    
    $
    19,839
    
    
    $
    172,438
    
    
    $
    1,138
    
    
    $
    (54,170
    )
    
    $
    859
    
    
    $
    140,104
  F-42




---



##### Table of Contents



AccumulatedCommon
    
    
    Retained
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Stock
    
    
    Earnings
    
    
    Comprehensive
    
    
    Shareholders($ in thousands)
    
    Stock
    
    
    Stock
    
    
    Warrant
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalances, January 1, 2010
    
    $
    19,839
    
    
    $
    172,438
    
    
    $
    1,138
    
    
    $
    (54,170
    )
    
    $
    859
    
    
    $
    140,104Accretion of preferred stock
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    (238
    )
    
    
    
    
    
    
    0Employee stock purchase plan
(9,129 shares)
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47Dividend reinvestment plan
(687 shares)
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Stock-based compensation expense
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275Cash dividends
($0.01 per common share)
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,057
    )
    
    
    
    
    
    
    (1,057
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,316
    )
    
    
    
    
    
    
    (13,316
    )Change in net unrealized gain (loss)
on securities available for sale,
net of reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    (244
    )Net unrealized gain on securities
transferred from held to maturity to
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    274Reclassification of unrealized gain on
interest rate swaps, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,350
    )Balances, December 31, 2010
    
    $
    20,077
    
    
    $
    172,677
    
    
    $
    1,138
    
    
    $
    (68,781
    )
    
    $
    825
    
    
    $
    125,936
  F-43




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Cash flows from operating activitiesNet income (loss)
    
    $
    (13,316,000
    )
    
    $
    (52,087,000
    )
    
    $
    (4,959,000
    )Adjustments to reconcile net income (loss)
to net cash from (for) operating activities:Depreciation and amortization
    
    
    2,440,000
    
    
    
    2,577,000
    
    
    
    2,773,000Provision for loan and lease losses
    
    
    31,800,000
    
    
    
    59,000,000
    
    
    
    21,200,000Deferred income tax expense (benefit)
    
    
    (47,000
    )
    
    
    9,973,000
    
    
    
    (1,558,000
    )Stock-based compensation expense
    
    
    275,000
    
    
    
    611,000
    
    
    
    654,000Proceeds from sales of mortgage loans held for sale
    
    
    66,795,000
    
    
    
    80,782,000
    
    
    
    44,095,000Origination of mortgage loans held for sale
    
    
    (66,104,000
    )
    
    
    (82,251,000
    )
    
    
    (42,810,000
    )Net gain on sale of mortgage loans held for sale
    
    
    (846,000
    )
    
    
    (905,000
    )
    
    
    (506,000
    )Net gain on sale of held to maturity securities
    
    
    (476,000
    )
    
    
    0
    
    
    
    0Gain on sale of commercial loans
    
    
    (324,000
    )
    
    
    0
    
    
    
    0Net (gain) loss on sale and write-down of
premises and equipment
    
    
    (2,000
    )
    
    
    227,000
    
    
    
    (11,000
    )Net loss on sale and valuation write-downs of foreclosed assets
    
    
    4,432,000
    
    
    
    3,551,000
    
    
    
    1,768,000Recognition of unrealized gain on interest rate swaps
    
    
    (99,000
    )
    
    
    (1,803,000
    )
    
    
    (974,000
    )Earnings on bank owned life insurance
    
    
    (1,718,000
    )
    
    
    (1,444,000
    )
    
    
    (1,727,000
    )Net change in:Accrued interest receivable
    
    
    1,146,000
    
    
    
    1,425,000
    
    
    
    1,444,000Other assets
    
    
    7,540,000
    
    
    
    (18,407,000
    )
    
    
    913,000Accrued interest and other liabilities
    
    
    (1,894,000
    )
    
    
    (10,024,000
    )
    
    
    (6,667,000
    )Net cash from (for) operating activities
    
    
    29,602,000
    
    
    
    (8,775,000
    )
    
    
    13,635,000Cash flows from investing activitiesPurchases of:Securities available for sale
    
    
    (106,329,000
    )
    
    
    (73,059,000
    )
    
    
    (96,292,000
    )Securities held to maturity
    
    
    0
    
    
    
    (1,025,000
    )
    
    
    (978,000
    )Federal Home Loan Bank stock
    
    
    0
    
    
    
    0
    
    
    
    (5,948,000
    )Proceeds from:Maturities, calls and repayments of
securities available for sale
    
    
    107,480,000
    
    
    
    52,343,000
    
    
    
    73,571,000Maturities, calls and repayments of
securities held to maturity
    
    
    0
    
    
    
    6,270,000
    
    
    
    1,840,000Proceeds from sale of held to maturity securities
    
    
    20,452,000
    
    
    
    0
    
    
    
    0Proceeds from Federal Home Loan Bank stock redemption
    
    
    1,336,000
    
    
    
    0
    
    
    
    0Loan and lease originations and payments, net
    
    
    226,563,000
    
    
    
    240,291,000
    
    
    
    (86,489,000
    )Proceeds from sale of commercial loans
    
    
    7,395,000
    
    
    
    11,633,000
    
    
    
    0Purchases of premises and equipment, net
    
    
    (118,000
    )
    
    
    (44,000
    )
    
    
    (673,000
    )Proceeds from sale of foreclosed assets
    
    
    14,900,000
    
    
    
    7,276,000
    
    
    
    4,777,000Purchases of bank owned life insurance
    
    
    0
    
    
    
    (1,118,000
    )
    
    
    (1,617,000
    )Net cash from (for) investing activities
    
    
    271,679,000
    
    
    
    242,567,000
    
    
    
    (111,809,000
    )
  F-44




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Cash flows from financing activitiesNet increase (decrease) in time deposits
    
    
    (331,638,000
    )
    
    
    (240,269,000
    )
    
    
    42,774,000Net increase (decrease) in all other deposits
    
    
    203,843,000
    
    
    
    42,321,000
    
    
    
    (34,380,000
    )Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    17,224,000
    
    
    
    5,342,000
    
    
    
    (3,052,000
    )Net increase (decrease) in federal funds purchased
    
    
    (2,600,000
    )
    
    
    2,600,000
    
    
    
    (13,800,000
    )Proceeds from Federal Home Loan Bank advances
    
    
    0
    
    
    
    5,000,000
    
    
    
    266,500,000Maturities and prepayments of Federal Home Loan Bank advances
    
    
    (140,000,000
    )
    
    
    (70,000,000
    )
    
    
    (176,500,000
    )Increase in structured repurchase agreements
    
    
    0
    
    
    
    0
    
    
    
    15,000,000Maturities of structured repurchase agreements
    
    
    (5,000,000
    )
    
    
    0
    
    
    
    0Increase (decrease) in other borrowed money
    
    
    (86,000
    )
    
    
    (2,638,000
    )
    
    
    515,000Proceeds from issuance of preferred stock and common
stock warrant, net
    
    
    0
    
    
    
    20,834,000
    
    
    
    0Employee stock purchase plan
    
    
    47,000
    
    
    
    57,000
    
    
    
    76,000Dividend reinvestment plan
    
    
    2,000
    
    
    
    11,000
    
    
    
    40,000Payment of cash dividends on preferred stock
    
    
    (525,000
    )
    
    
    (525,000
    )
    
    
    0Payment of cash dividends to common shareholders
    
    
    (85,000
    )
    
    
    (594,000
    )
    
    
    (2,625,000
    )Net cash from (for) financing activities
    
    
    (258,818,000
    )
    
    
    (237,861,000
    )
    
    
    94,548,000Net change in cash and cash equivalents
    
    
    42,463,000
    
    
    
    (4,069,000
    )
    
    
    (3,626,000
    )Cash and cash equivalents at beginning of period
    
    
    21,735,000
    
    
    
    25,804,000
    
    
    
    29,430,000Cash and cash equivalents at end of period
    
    $
    64,198,000
    
    
    $
    21,735,000
    
    
    $
    25,804,000Supplemental disclosures of cash flow informationCash paid during the year for:Interest
    
    $
    33,203,000
    
    
    $
    62,663,000
    
    
    $
    80,748,000Federal income taxes
    
    
    0
    
    
    
    0
    
    
    
    0Noncash financing and investing activities:Transfers from loans and leases to foreclosed assets
    
    
    9,399,000
    
    
    
    29,317,000
    
    
    
    9,062,000Preferred stock cash dividend accrued
    
    
    666,000
    
    
    
    134,000
    
    
    
    0
  F-45




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Nature of Operations
    Use of Estimates
  F-46




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Cash Flow Reporting
 Securities
   Loans and Leases
   Loans Held for Sale
  F-47




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Troubled Debt Restructurings
 Allowance for Loan and Lease Losses
  Transfers of Financial Assets
 Premises and Equipment
  F-48




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Long-lived Assets
 Foreclosed Assets:
 Bank Owned Life Insurance:
 Repurchase Agreements
 Financial Instruments and Loan Commitments
 Stock-Based Compensation:
 Income Taxes
 Fair Values of Financial Instruments
 Earnings Per Share
  F-49




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Comprehensive Income (Loss)
 Derivatives
   Contingencies:
 Operating Segment
 Adoption of New Accounting Standards Accounting for Transfers of
Financial Assets Accounting for Transfers of Financial Assets, an
amendment of FASB Statement No. 140
  F-50




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Improving Disclosure about Fair Value Measurements
 Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses Deferral of the Effective Date of Disclosures about Troubled Debt
Restructurings in Update No. 2010-20
  F-51




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##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2010U.S. Government agency
debt obligations
    
    $
    121,633,000
    
    
    $
    1,704,000
    
    
    $
    (1,775,000
    )
    
    $
    121,562,000Mortgage-backed securities
    
    
    44,340,000
    
    
    
    2,601,000
    
    
    
    0
    
    
    
    46,941,000Michigan Strategic Fund bonds
    
    
    18,175,000
    
    
    
    0
    
    
    
    0
    
    
    
    18,175,000Municipal general obligation bonds
    
    
    28,594,000
    
    
    
    227,000
    
    
    
    (779,000
    )
    
    
    28,042,000Municipal revenue bonds
    
    
    4,841,000
    
    
    
    46,000
    
    
    
    (44,000
    )
    
    
    4,843,000Mutual funds
    
    
    1,264,000
    
    
    
    3,000
    
    
    
    0
    
    
    
    1,267,000$
    218,847,000
    
    
    $
    4,581,000
    
    
    $
    (2,598,000
    )
    
    $
    220,830,0002009U.S. Government agency
debt obligations
    
    $
    96,438,000
    
    
    $
    490,000
    
    
    $
    (1,384,000
    )
    
    $
    95,544,000Mortgage-backed securities
    
    
    62,171,000
    
    
    
    2,811,000
    
    
    
    0
    
    
    
    64,982,000Michigan Strategic Fund bonds
    
    
    20,550,000
    
    
    
    0
    
    
    
    0
    
    
    
    20,550,000Mutual funds
    
    
    1,425,000
    
    
    
    0
    
    
    
    (9,000
    )
    
    
    1,416,000$
    180,584,000
    
    
    $
    3,301,000
    
    
    $
    (1,393,000
    )
    
    $
    182,492,000
  Gross
    
    
    GrossCarrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAmount
    
    
    Gains
    
    
    Losses
    
    
    Value2009Municipal general obligation bonds
    
    $
    49,892,000
    
    
    $
    1,000,000
    
    
    $
    (111,000
    )
    
    $
    50,781,000Municipal revenue bonds
    
    
    9,319,000
    
    
    
    190,000
    
    
    
    (19,000
    )
    
    
    9,490,000$
    59,211,000
    
    
    $
    1,190,000
    
    
    $
    (130,000
    )
    
    $
    60,271,000
  F-52




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##### 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
    
    
    Loss2010U.S. Government agency
debt obligations
    
    $
    56,588,000
    
    
    $
    (1,775,000
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    56,588,000
    
    
    $
    (1,775,000
    )Mortgage-backed securities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Michigan Strategic Fund bonds
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Mutual funds
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Municipal general
obligation bonds
    
    
    7,847,000
    
    
    
    (299,000
    )
    
    
    6,497,000
    
    
    
    (480,000
    )
    
    
    14,344,000
    
    
    
    (779,000
    )Municipal revenue bonds
    
    
    811,000
    
    
    
    (25,000
    )
    
    
    805,000
    
    
    
    (19,000
    )
    
    
    1,616,000
    
    
    
    (44,000
    )$
    65,246,000
    
    
    $
    (2,099,000
    )
    
    $
    7,302,000
    
    
    $
    (499,000
    )
    
    $
    72,548,000
    
    
    $
    (2,598,000
    )2009U.S. Government agency
debt obligations
    
    $
    50,190,000
    
    
    $
    (1,322,000
    )
    
    $
    7,927,000
    
    
    $
    (62,000
    )
    
    $
    58,117,000
    
    
    $
    (1,384,000
    )Mortgage-backed securities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Michigan Strategic Fund bonds
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Mutual funds
    
    
    0
    
    
    
    0
    
    
    
    1,211,000
    
    
    
    (9,000
    )
    
    
    1,211,000
    
    
    
    (9,000
    )Municipal general
obligation bonds
    
    
    738,000
    
    
    
    (5,000
    )
    
    
    8,638,000
    
    
    
    (106,000
    )
    
    
    9,376,000
    
    
    
    (111,000
    )Municipal revenue bonds
    
    
    228,000
    
    
    
    (12,000
    )
    
    
    1,073,000
    
    
    
    (7,000
    )
    
    
    1,301,000
    
    
    
    (19,000
    )$
    51,156,000
    
    
    $
    (1,339,000
    )
    
    $
    18,849,000
    
    
    $
    (184,000
    )
    
    $
    70,005,000
    
    
    $
    (1,523,000
    )
   F-53




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##### Table of Contents



NOTE 2  SECURITIES
    WeightedAverage
    
    
    Amortized
    
    
    FairYield
    
    
    Cost
    
    
    ValueDue in one year or less
    
    NA
    
    $
    0
    
    
    $
    0Due from one to five years
    
    
    5.80
    %
    
    
    5,430,000
    
    
    
    5,816,000Due from five to ten years
    
    
    3.96
    
    
    
    21,318,000
    
    
    
    21,248,000Due after ten years
    
    
    4.73
    
    
    
    128,320,000
    
    
    
    127,383,000Mortgage-backed securities
    
    
    5.14
    
    
    
    44,340,000
    
    
    
    46,941,000Michigan Strategic Fund bonds
    
    
    3.04
    
    
    
    18,175,000
    
    
    
    18,175,000Mutual funds
    
    
    3.08
    
    
    
    1,264,000
    
    
    
    1,267,0004.62
    %
    
    $
    218,847,000
    
    
    $
    220,830,000
    F-54




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##### Table of Contents



NOTE 2  SECURITIES
  NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  PercentDecember 31, 2010
    
    
    December 31, 2009
    
    
    IncreaseBalance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Commercial:Commercial and industrial
    
    $
    288,515,000
    
    
    
    22.8
    %
    
    $
    408,234,000
    
    
    
    26.5
    %
    
    
    (29.3
    )%Vacant land, land
development, and
residential construction
    
    
    83,786,000
    
    
    
    6.6
    
    
    
    109,293,000
    
    
    
    7.1
    
    
    
    (23.3
    )Real estate  owner occupied
    
    
    277,377,000
    
    
    
    22.0
    
    
    
    332,793,000
    
    
    
    21.6
    
    
    
    (16.7
    )Real estate  non-owner
occupied
    
    
    449,104,000
    
    
    
    35.6
    
    
    
    503,736,000
    
    
    
    32.7
    
    
    
    (10.8
    )Real estate  multi-family
and residential rental
    
    
    77,188,000
    
    
    
    6.1
    
    
    
    88,657,000
    
    
    
    5.8
    
    
    
    (12.9
    )Total commercial
    
    
    1,175,970,000
    
    
    
    93.1
    
    
    
    1,442,713,000
    
    
    
    93.7
    
    
    
    (18.5
    )Retail:Home equity and other
    
    
    51,186,000
    
    
    
    4.1
    
    
    
    57,537,000
    
    
    
    3.7
    
    
    
    (11.0
    )1-4 family mortgages
    
    
    35,474,000
    
    
    
    2.8
    
    
    
    39,568,000
    
    
    
    2.6
    
    
    
    (10.3
    )Total retail
    
    
    86,660,000
    
    
    
    6.9
    
    
    
    97,105,000
    
    
    
    6.3
    
    
    
    (10.8
    )Total loans and leases
    
    $
    1,262,630,000
    
    
    
    100.0
    %
    
    $
    1,539,818,000
    
    
    
    100.0
    %
    
    
    (18.0
    )%
  2010
    
    2009Percentage of
    
    
    
    
    
    Percentage ofBalance
    
    Loan Portfolio
    
    Balance
    
    Loan PortfolioCommercial real estate loans to
lessors of non-residential
buildings
    
    $
    391,056,000
    
    
    
    31.0
    %
    
    $
    467,017,000
    
    
    
    30.3
    %
  F-55




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  2010
    
    
    2009Loans and leases past due 90 days or more still accruing interest
    
    $
    766,000
    
    
    $
    243,000Nonaccrual loans and leases, including troubled debt restructurings
    
    
    63,915,000
    
    
    
    81,818,000Troubled debt restructurings, accruing interest
    
    
    4,763,000
    
    
    
    2,989,000Total nonperforming loans and leases
    
    $
    69,444,000
    
    
    $
    85,050,000
  RecordedPrincipalBalanceCommercial:Commercial and industrial
    
    $
    10,128,000Vacant land, land development and residential construction
    
    
    12,441,000Real estate  owner occupied
    
    
    10,172,000Real estate  non-owner occupied
    
    
    22,609,000Real estate  multi-family and residential rental
    
    
    4,686,000Total commercial
    
    
    60,036,000Retail:Home equity and other
    
    
    2,425,0001-4 family mortgages
    
    
    1,454,000Total retail
    
    
    3,879,000Total nonaccrual loans and leases
    
    $
    63,915,000
  F-56




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  Greater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recorded3059
    
    
    6089
    
    
    Than 89
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    Balance > 89Days
    
    
    Days
    
    
    Days
    
    
    Total
    
    
    
    
    
    
    Loans and
    
    
    Days andPast Due
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Current
    
    
    Leases
    
    
    AccruingCommercial:Commercial and
industrial
    
    $
    280,000
    
    
    $
    2,074,000
    
    
    $
    1,474,000
    
    
    $
    3,828,000
    
    
    $
    284,687,000
    
    
    $
    288,515,000
    
    
    $
    19,000Vacant land, land
development, and
residential
construction
    
    
    0
    
    
    
    453,000
    
    
    
    3,586,000
    
    
    
    4,039,000
    
    
    
    79,747,000
    
    
    
    83,786,000
    
    
    
    0Real estate 
owner occupied
    
    
    1,194,000
    
    
    
    574,000
    
    
    
    6,497,000
    
    
    
    8,265,000
    
    
    
    269,112,000
    
    
    
    277,377,000
    
    
    
    0Real estate 
non-owner occupied
    
    
    164,000
    
    
    
    4,341,000
    
    
    
    12,520,000
    
    
    
    17,025,000
    
    
    
    432,079,000
    
    
    
    449,104,000
    
    
    
    747,000Real estate 
multi-family and
residential rental
    
    
    672,000
    
    
    
    0
    
    
    
    2,692,000
    
    
    
    3,364,000
    
    
    
    73,824,000
    
    
    
    77,188,000
    
    
    
    0Total commercial
    
    
    2,310,000
    
    
    
    7,442,000
    
    
    
    26,769,000
    
    
    
    36,521,000
    
    
    
    1,139,449,000
    
    
    
    1,175,970,000
    
    
    
    766,000Retail:Home equity and other
    
    
    1,024,000
    
    
    
    179,000
    
    
    
    227,000
    
    
    
    1,430,000
    
    
    
    49,756,000
    
    
    
    51,186,000
    
    
    
    01- 4 family mortgages
    
    
    365,000
    
    
    
    0
    
    
    
    316,000
    
    
    
    681,000
    
    
    
    34,793,000
    
    
    
    35,474,000
    
    
    
    0Total retail
    
    
    1,389,000
    
    
    
    179,000
    
    
    
    543,000
    
    
    
    2,111,000
    
    
    
    84,549,000
    
    
    
    86,660,000
    
    
    
    0Total past due
loans and leases
    
    $
    3,699,000
    
    
    $
    7,621,000
    
    
    $
    27,312,000
    
    
    $
    38,632,000
    
    
    $
    1,223,998,000
    
    
    $
    1,262,630,000
    
    
    $
    766,000
  F-57




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  UnpaidContractual
    
    
    RecordedPrincipal
    
    
    Principal
    
    
    RelatedBalance
    
    
    Balance
    
    
    AllowanceWith no related allowance recorded:Commercial:Commercial and industrial
    
    $
    3,133,000
    
    
    $
    2,135,000Vacant land, land development and
residential construction
    
    
    13,255,000
    
    
    
    10,071,000Real estate  owner occupied
    
    
    9,327,000
    
    
    
    4,920,000Real estate  non-owner occupied
    
    
    23,380,000
    
    
    
    15,775,000Real estate  multi-family and residential rental
    
    
    1,657,000
    
    
    
    1,052,000Total commercial
    
    
    50,752,000
    
    
    
    33,953,000Retail:Home equity and other
    
    
    277,000
    
    
    
    151,0001-4 family mortgages
    
    
    151,000
    
    
    
    137,000Total retail
    
    
    428,000
    
    
    
    288,000Total with no related allowance recorded
    
    $
    51,180,000
    
    
    $
    34,241,000With an allowance recorded:Commercial:Commercial and industrial
    
    $
    7,405,000
    
    
    $
    6,922,000
    
    
    $
    3,554,000Vacant land, land development and
residential construction
    
    
    5,702,000
    
    
    
    4,370,000
    
    
    
    954,000Real estate  owner occupied
    
    
    7,047,000
    
    
    
    6,257,000
    
    
    
    1,996,000Real estate  non-owner occupied
    
    
    13,773,000
    
    
    
    7,875,000
    
    
    
    1,091,000Real estate  multi-family and residential rental
    
    
    5,544,000
    
    
    
    3,472,000
    
    
    
    909,000Total commercial
    
    
    39,471,000
    
    
    
    28,896,000
    
    
    
    8,504,000Retail:Home equity and other
    
    
    1,799,000
    
    
    
    1,910,000
    
    
    
    1,007,0001-4 family mortgages
    
    
    1,141,000
    
    
    
    909,000
    
    
    
    191,000Total retail
    
    
    2,940,000
    
    
    
    2,819,000
    
    
    
    1,198,000Total with an allowance recorded
    
    $
    42,411,000
    
    
    $
    31,715,000
    
    
    $
    9,702,000Total impaired loans and leases:Commercial
    
    
    90,223,000
    
    
    
    62,849,000
    
    
    
    8,504,000Retail
    
    
    3,368,000
    
    
    
    3,107,000
    
    
    
    1,198,000Total impaired loans and leases
    
    $
    93,591,000
    
    
    $
    65,956,000
    
    
    $
    9,702,000
  F-58




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  RecordedPrincipalBalanceLoans with no allocated allowance for loan and lease losses
    
    $
    25,500,000Loans with allocated allowance for loan and lease losses
    
    
    39,855,000Total impaired loans and leases
    
    $
    65,355,000Amount of the allowance for loan and lease losses allocated
    
    $
    9,832,000
   F-59




---



##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
 Credit Quality Indicators.
   Commercial
    
    
    
    
    
    
    
    
    
    
    CommercialVacant Land,
    
    
    Commercial
    
    
    Commercial
    
    
    Real Estate -Commercial
    
    
    Land Development,
    
    
    Real Estate -
    
    
    Real Estate -
    
    
    Multi-Familyand
    
    
    and Residential
    
    
    Owner
    
    
    Non-Owner
    
    
    and ResidentialIndustrial
    
    
    Construction
    
    
    Occupied
    
    
    Occupied
    
    
    RentalInternal credit risk grade groupings:Grades 1  4
    
    $
    161,623,000
    
    
    $
    8,098,000
    
    
    $
    137,340,000
    
    
    $
    160,746,000
    
    
    $
    29,902,000Grades 5  7
    
    
    113,904,000
    
    
    
    58,326,000
    
    
    
    123,572,000
    
    
    
    249,246,000
    
    
    
    31,852,000Grades 8  9
    
    
    12,988,000
    
    
    
    17,362,000
    
    
    
    16,465,000
    
    
    
    39,112,000
    
    
    
    15,434,000Total commercial
    
    $
    288,515,000
    
    
    $
    83,786,000
    
    
    $
    277,377,000
    
    
    $
    449,104,000
    
    
    $
    77,188,000
  Retail
    
    
    RetailHome Equity
    
    
    1-4 Familyand Other
    
    
    MortgagesTotal retail
    
    $
    51,186,000
    
    
    $
    35,474,000
  F-60




---



##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  Grade 1.
    
    Excellent credit rating that contain very little, if any, risk of loss.Grade 2.
    
    Strong sources of repayment and have low repayment risk.Grade 3.
    
    Good sources of repayment and have limited repayment risk.Grade 4.
    
    Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the
credit more vulnerable to a negative event.Grade 5.
    
    Marginally acceptable sources of repayment and exhibit defined weaknesses and
negative characteristics.Grade 6.
    
    Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally,
if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be
downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and
review by the Board of Directors and senior management).Grade 7.
    
    Defined weaknesses or negative trends that merit close monitoring through Watch List status.Grade 8.
    
    Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in
a distinct possibility of loss requiring close monitoring through Watch List status.Grade 9.
    
    Vital weaknesses exist where collection of principal is highly questionable.Grade 10.
    
    Considered uncollectible and of such little value that their continuance as an asset
is not warranted.
   F-61




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##### Table of Contents



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  Commercial
    
    
    RetailLoans and Leases
    
    
    Loans
    
    
    Unallocated
    
    
    TotalAllowance for loan and lease losses:Beginning balance
    
    $
    46,603,000
    
    
    $
    1,256,000
    
    
    $
    19,000
    
    
    $
    47,878,000Provision for loan and
lease losses
    
    
    29,030,000
    
    
    
    2,752,000
    
    
    
    18,000
    
    
    
    31,800,000Charge-offs
    
    
    (35,968,000
    )
    
    
    (1,160,000
    )
    
    
    0
    
    
    
    (37,128,000
    )Recoveries
    
    
    2,694,000
    
    
    
    124,000
    
    
    
    0
    
    
    
    2,818,000Ending balance
    
    $
    42,359,000
    
    
    $
    2,972,000
    
    
    $
    37,000
    
    
    $
    45,368,000Ending balance: individually
evaluated for impairment
    
    $
    8,504,000
    
    
    $
    1,198,000
    
    
    $
    0
    
    
    $
    9,702,000Ending balance: collectively
evaluated for impairment
    
    $
    33,855,000
    
    
    $
    1,774,000
    
    
    $
    37,000
    
    
    $
    35,666,000Total loans and leases:Ending balance
    
    $
    1,175,970,000
    
    
    $
    86,660,000
    
    
    
    
    
    
    $
    1,262,630,000Ending balance: individually
evaluated for impairment
    
    $
    62,850,000
    
    
    $
    3,106,000
    
    
    
    
    
    
    $
    65,956,000Ending balance: collectively
evaluated for impairment
    
    $
    1,113,120,000
    
    
    $
    83,554,000
    
    
    
    
    
    
    $
    1,196,674,000
  2009
    
    
    2008Beginning balance
    
    $
    27,108,000
    
    
    $
    25,814,000Provision for loan and lease losses
    
    
    59,000,000
    
    
    
    21,200,000Charge-offs
    
    
    (39,621,000
    )
    
    
    (20,594,000
    )Recoveries
    
    
    1,391,000
    
    
    
    688,000Ending balance
    
    $
    47,878,000
    
    
    $
    27,108,000
  F-62




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##### Table of Contents



NOTE 4  PREMISES AND EQUIPMENT, NET
  2010
    
    
    2009Land and improvements
    
    $
    8,531,000
    
    
    $
    8,531,000Buildings
    
    
    24,528,000
    
    
    
    24,515,000Furniture and equipment
    
    
    12,478,000
    
    
    
    12,532,00045,537,000
    
    
    
    45,578,000Less: accumulated depreciation
    
    
    17,664,000
    
    
    
    15,894,000Total premises and equipment
    
    $
    27,873,000
    
    
    $
    29,684,000
  NOTE 5  DEPOSITS
  PercentDecember 31, 2010
    
    
    December 31, 2009
    
    
    IncreaseBalance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Noninterest-bearing
demand
    
    $
    112,944,000
    
    
    
    8.9
    %
    
    $
    121,157,000
    
    
    
    8.6
    %
    
    
    (6.8
    )%Interest-bearing
checking
    
    
    158,177,000
    
    
    
    12.4
    
    
    
    86,320,000
    
    
    
    6.2
    
    
    
    83.2Money market
    
    
    150,631,000
    
    
    
    11.8
    
    
    
    32,008,000
    
    
    
    2.3
    
    
    
    370.6Savings
    
    
    60,201,000
    
    
    
    4.7
    
    
    
    38,625,000
    
    
    
    2.8
    
    
    
    55.9Time, under $100,000
    
    
    75,857,000
    
    
    
    6.0
    
    
    
    105,195,000
    
    
    
    7.5
    
    
    
    (27.9
    )Time, $100,000 and
over
    
    
    206,954,000
    
    
    
    16.2
    
    
    
    293,455,000
    
    
    
    20.9
    
    
    
    (29.5
    )764,764,000
    
    
    
    60.0
    
    
    
    676,760,000
    
    
    
    48.3
    
    
    
    13.0Out-of-area time,
under $100,000
    
    
    37,253,000
    
    
    
    2.9
    
    
    
    62,760,000
    
    
    
    4.5
    
    
    
    (40.6
    )Out-of-area time,
$100,000 and over
    
    
    471,815,000
    
    
    
    37.1
    
    
    
    662,107,000
    
    
    
    47.2
    
    
    
    (28.7
    )509,068,000
    
    
    
    40.0
    
    
    
    724,867,000
    
    
    
    51.7
    
    
    
    (29.8
    )Total deposits
    
    $
    1,273,832,000
    
    
    
    100.0
    %
    
    $
    1,401,627,000
    
    
    
    100.0
    %
    
    
    (9.1
    )%
   F-63




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##### Table of Contents



NOTE 5  DEPOSITS
  2010
    
    
    2009In one year or less
    
    $
    495,914,000
    
    
    $
    850,801,000In one to two years
    
    
    179,867,000
    
    
    
    186,135,000In two to three years
    
    
    70,602,000
    
    
    
    68,210,000In three to four years
    
    
    27,842,000
    
    
    
    11,565,000In four to five years
    
    
    17,654,000
    
    
    
    6,806,000Total certificates
of deposit
    
    $
    791,879,000
    
    
    $
    1,123,517,000
  2010
    
    
    2009Up to three months
    
    $
    184,283,000
    
    
    $
    314,358,000Three months to six months
    
    
    108,963,000
    
    
    
    164,870,000Six months to twelve months
    
    
    128,315,000
    
    
    
    235,315,000Over twelve months
    
    
    257,208,000
    
    
    
    241,019,000Total certificates of deposit
    
    $
    678,769,000
    
    
    $
    955,562,000
 NOTE 6  SHORT-TERM BORROWINGS
  2010
    
    2009Outstanding balance at year-end
    
    $
    116,979,000
    
    
    $
    99,755,000Weighted average interest rate at year-end
    
    
    0.69
    %
    
    
    1.41
    %Average daily balance during the year
    
    
    107,781,000
    
    
    
    98,409,000Weighted average interest rate during the year
    
    
    1.31
    %
    
    
    1.87
    %Maximum daily balance during the year
    
    
    133,280,000
    
    
    
    111,692,000
   F-64




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##### Table of Contents



NOTE 7  FEDERAL HOME LOAN BANK ADVANCES
    2011
    
    $
    10,000,0002012
    
    
    40,000,0002013
    
    
    10,000,0002014
    
    
    5,000,0002015
    
    
    0
 NOTE 8  FEDERAL INCOME TAXES
  2010
    
    
    2009
    
    
    2008Current expense (benefit)
    
    $
    0
    
    
    $
    (4,483,000
    )
    
    $
    (3,318,000
    )Deferred benefit
    
    
    (47,000
    )
    
    
    (13,276,000
    )
    
    
    (1,558,000
    )Deferred expense  establishment of valuation allowance
    
    
    0
    
    
    
    23,249,000
    
    
    
    0Tax expense (benefit)
    
    $
    (47,000
    )
    
    $
    5,490,000
    
    
    $
    (4,876,000
    )
   2010
    
    
    2009
    
    
    2008Tax at statutory rate (35%)
    
    $
    (4,677,000
    )
    
    $
    (16,309,000
    )
    
    $
    (3,442,000
    )Increase (decrease) fromTax-exempt interest
    
    
    (706,000
    )
    
    
    (866,000
    )
    
    
    (818,000
    )Bank owned life insurance
    
    
    (601,000
    )
    
    
    (505,000
    )
    
    
    (605,000
    )Change in valuation allowance
    
    
    5,896,000
    
    
    
    23,249,000
    
    
    
    0Other
    
    
    41,000
    
    
    
    (79,000
    )
    
    
    (11,000
    )Tax expense (benefit)
    
    $
    (47,000
    )
    
    $
    5,490,000
    
    
    $
    (4,876,000
    )
  F-65




---



##### Table of Contents



NOTE 8  FEDERAL INCOME TAXES
  2010
    
    
    2009Deferred income tax assetsAllowance for loan and lease losses
    
    $
    15,879,000
    
    
    $
    16,757,000Deferred loan fees
    
    
    165,000
    
    
    
    160,000Deferred compensation
    
    
    631,000
    
    
    
    661,000Nonaccrual loan interest income
    
    
    935,000
    
    
    
    480,000Fair value write-downs on foreclosed properties
    
    
    2,038,000
    
    
    
    1,436,000Net operating loss carryforward
    
    
    10,379,000
    
    
    
    4,941,000Tax credit carryforwards
    
    
    807,000
    
    
    
    668,000Other
    
    
    704,000
    
    
    
    726,00031,538,000
    
    
    
    25,829,000Deferred income tax liabilitiesDepreciation
    
    
    639,000
    
    
    
    770,000Unrealized gain on securities
    
    
    694,000
    
    
    
    648,000Interest rate swaps
    
    
    0
    
    
    
    33,000Other
    
    
    565,000
    
    
    
    634,0001,898,000
    
    
    
    2,085,000Net deferred tax asset before valuation allowance
    
    
    29,640,000
    
    
    
    23,744,000Valuation allowance
    
    
    (29,640,000
    )
    
    
    (23,744,000
    )Total net deferred tax asset
    
    $
    0
    
    
    $
    0
     F-66




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##### Table of Contents



NOTE 9  STOCK-BASED COMPENSATION
     2010
    
    
    2009
    
    
    2008Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested at
beginning of year
    
    
    91,233
    
    
    $
    14.98
    
    
    
    113,010
    
    
    $
    14.85
    
    
    
    63,024
    
    
    $
    23.69Granted
    
    
    0
    
    
    NA
    
    
    
    0
    
    
    NA
    
    
    
    56,710
    
    
    
    6.21Vested
    
    
    (12,941
    )
    
    
    37.76
    
    
    
    (3,290
    )
    
    
    20.39
    
    
    
    (128
    )
    
    
    30.37Forfeited
    
    
    (4,337
    )
    
    
    14.62
    
    
    
    (18,487
    )
    
    
    13.20
    
    
    
    (6,596
    )
    
    
    24.72Nonvested at
end of year
    
    
    73,955
    
    
    $
    11.02
    
    
    
    91,233
    
    
    $
    14.98
    
    
    
    113,010
    
    
    $
    14.85




---



##### Table of Contents



NOTE 9  STOCK-BASED COMPENSATION
  2010
    
    
    2009
    
    
    2008Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
beginning of year
    
    
    293,572
    
    
    $
    20.43
    
    
    
    322,791
    
    
    $
    20.58
    
    
    
    271,755
    
    
    $
    24.34Granted
    
    
    0
    
    
    NA
    
    
    
    0
    
    
    NA
    
    
    
    67,460
    
    
    
    6.21Exercised
    
    
    0
    
    
    NA
    
    
    
    0
    
    
    NA
    
    
    
    (2,000
    )
    
    
    8.22Forfeited or expired
    
    
    (31,530
    )
    
    
    14.23
    
    
    
    (29,219
    )
    
    
    22.05
    
    
    
    (14,424
    )
    
    
    25.85Outstanding at
end of year
    
    
    262,042
    
    
    $
    21.18
    
    
    
    293,572
    
    
    $
    20.43
    
    
    
    322,791
    
    
    $
    20.58Options exercisable
at year-end
    
    
    250,222
    
    
    $
    21.86
    
    
    
    228,252
    
    
    $
    24.20
    
    
    
    196,051
    
    
    $
    25.44
   2010
    
    2009
    
    2008Risk-free interest rate
    
    NA
    
    NA
    
    
    2.00
    %Expected option life
    
    NA
    
    NA
    
    5 YearsExpected stock price volatility
    
    NA
    
    NA
    
    
    44
    %Dividend yield
    
    NA
    
    NA
    
    
    1
    %




---



##### 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$4.00 - $8.00
    
    
    56,760
    
    
    4.9 Years
    
    $
    6.21
    
    
    
    45,500
    
    
    $
    6.21$12.01 - $16.00
    
    
    26,402
    
    
    0.8 Years
    
    
    12.84
    
    
    
    26,402
    
    
    
    12.84$16.01 - $20.00
    
    
    67,160
    
    
    3.1 Years
    
    
    17.16
    
    
    
    66,600
    
    
    
    17.15$20.01 - $24.00
    
    
    6,360
    
    
    1.8 Years
    
    
    20.18
    
    
    
    6,360
    
    
    
    20.18$24.01 - $28.00
    
    
    21,065
    
    
    2.8 Years
    
    
    26.61
    
    
    
    21,065
    
    
    
    26.61$32.01 - $36.00
    
    
    61,308
    
    
    4.3 Years
    
    
    34.75
    
    
    
    61,308
    
    
    
    34.75$36.01 - $40.00
    
    
    16,629
    
    
    2.9 Years
    
    
    37.94
    
    
    
    16,629
    
    
    
    37.94$40.01 - $44.00
    
    
    6,358
    
    
    3.8 Years
    
    
    40.28
    
    
    
    6,358
    
    
    
    40.28Outstanding at year end
    
    
    262,042
    
    
    3.5 Years
    
    $
    21.18
    
    
    
    250,222
    
    
    $
    21.86
   2010
    
    2009
    
    2008Minimum exercise price
    
    $
    6.21
    
    
    $
    6.21
    
    
    $
    6.21Maximum exercise price
    
    
    40.28
    
    
    
    40.28
    
    
    
    40.28Average remaining option term
    
    3.5 Years
    
    
    4.2 Years
    
    
    5.3 Years
  2010
    
    2009
    
    2008Aggregate intrinsic value of stock options exercised
    
    $NA
    
    $NA
    
    $
    13,000Cash received from stock option exercises
    
    NA
    
    NA
    
    
    0Tax benefit realized from stock option exercises
    
    NA
    
    NA
    
    
    0Weighted average per share fair value of stock
options granted
    
    NA
    
    NA
    
    
    2.32




---



##### Table of Contents



NOTE 10  RELATED PARTIES
  2010
    
    
    2009Beginning balance
    
    $
    12,174,000
    
    
    $
    14,090,000New loans
    
    
    79,000
    
    
    
    519,000Repayments
    
    
    (757,000
    )
    
    
    (2,435,000
    )Adjustments
    
    
    (615,000
    )
    
    
    0Ending balance
    
    $
    10,881,000
    
    
    $
    12,174,000
  NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK




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##### Table of Contents



NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
  2010
    
    
    2009Commercial unused lines of credit
    
    $
    158,945,000
    
    
    $
    205,018,000Unused lines of credit secured by 1  4 family
residential properties
    
    
    26,870,000
    
    
    
    24,916,000Credit card unused lines of credit
    
    
    7,768,000
    
    
    
    8,565,000Other consumer unused lines of credit
    
    
    4,052,000
    
    
    
    4,526,000Commitments to make loans
    
    
    9,840,000
    
    
    
    7,701,000Standby letters of credit
    
    
    19,343,000
    
    
    
    36,512,000Total commitments
    
    $
    226,818,000
    
    
    $
    287,238,000




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##### Table of Contents



NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
  2010
    
    2009Contract
    
    Carrying
    
    Contract
    
    CarryingAmount
    
    Value
    
    Amount
    
    ValueStandby letters of credit
    
    $
    19,343,000
    
    
    $
    168,000
    
    
    $
    36,512,000
    
    
    $
    220,000
  NOTE 12  BENEFIT PLANS
      F-72




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##### Table of Contents



NOTE 13  HEDGING ACTIVITIES
      F-73




---



##### Table of Contents



NOTE 14  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2010
    
    2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    64,198,000
    
    
    $
    64,198,000
    
    
    $
    21,735,000
    
    
    $
    21,735,000Securities available for sale
    
    
    220,830,000
    
    
    
    220,830,000
    
    
    
    182,492,000
    
    
    
    182,492,000Securities held to maturity
    
    
    0
    
    
    
    0
    
    
    
    59,211,000
    
    
    
    60,271,000Federal Home Loan Bank stock
    
    
    14,345,000
    
    
    
    14,345,000
    
    
    
    15,681,000
    
    
    
    15,681,000Loans, net
    
    
    1,217,262,000
    
    
    
    1,223,911,000
    
    
    
    1,491,940,000
    
    
    
    1,501,860,000Bank owned life insurance
    
    
    46,743,000
    
    
    
    46,743,000
    
    
    
    45,024,000
    
    
    
    45,024,000Accrued interest receivable
    
    
    5,942,000
    
    
    
    5,942,000
    
    
    
    7,088,000
    
    
    
    7,088,000Financial liabilitiesDeposits
    
    
    1,273,832,000
    
    
    
    1,284,767,000
    
    
    
    1,401,627,000
    
    
    
    1,407,310,000Securities sold under agreements
to repurchase
    
    
    116,979,000
    
    
    
    116,979,000
    
    
    
    99,755,000
    
    
    
    99,755,000Federal funds purchased
    
    
    0
    
    
    
    0
    
    
    
    2,600,000
    
    
    
    2,600,000Federal Home Loan Bank advances
    
    
    65,000,000
    
    
    
    67,668,000
    
    
    
    205,000,000
    
    
    
    208,435,000Subordinated debentures
    
    
    32,990,000
    
    
    
    33,006,000
    
    
    
    32,990,000
    
    
    
    32,971,000Accrued interest payable
    
    
    4,749,000
    
    
    
    4,749,000
    
    
    
    6,158,000
    
    
    
    6,158,000
    F-74




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##### Table of Contents



NOTE 15  FAIR VALUE MEASUREMENTS
       Securities available for sale.
 Securities held to maturity.
  F-75




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##### Table of Contents



NOTE 15  FAIR VALUE MEASUREMENTS
 Mortgage loans held for sale.
 Loans and leases.
 Foreclosed assets.
 Derivatives.
 Assets and Liabilities Measured at Fair Value on a Recurring Basi
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government agency
debt obligations
    
    $
    121,562,000
    
    
    $
    0
    
    
    $
    121,562,000
    
    
    $
    0Mortgage-backed securities
    
    
    46,941,000
    
    
    
    0
    
    
    
    46,941,000
    
    
    
    0Michigan Strategic Fund bonds
    
    
    18,175,000
    
    
    
    0
    
    
    
    18,175,000
    
    
    
    0Municipal general obligation
bonds
    
    
    28,042,000
    
    
    
    0
    
    
    
    28,042,000
    
    
    
    0Municipal revenue bonds
    
    
    4,843,000
    
    
    
    0
    
    
    
    4,843,000
    
    
    
    0Mutual funds
    
    
    1,267,000
    
    
    
    0
    
    
    
    1,267,000
    
    
    
    0Total securities available
for sale
    
    $
    220,830,000
    
    
    $
    0
    
    
    $
    220,830,000
    
    
    $
    0
   F-76




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##### Table of Contents



NOTE 15  FAIR VALUE MEASUREMENTS
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Securities available for sale
    
    $
    182,492,000
    
    
    $
    0
    
    
    $
    182,492,000
    
    
    $
    0Total
    
    $
    182,492,000
    
    
    $
    0
    
    
    $
    182,492,000
    
    
    $
    0
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (1)
    
    $
    39,056,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    39,056,000Foreclosed assets (1)
    
    
    16,675,000
    
    
    
    0
    
    
    
    0
    
    
    
    16,675,000Total
    
    $
    55,731,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    55,731,000
  QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (1)
    
    $
    41,456,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    41,456,000Foreclosed assets (1)
    
    
    26,608,000
    
    
    
    0
    
    
    
    0
    
    
    
    26,608,000Total
    
    $
    68,064,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    68,064,000
 
 (1)
    
    Represents carrying value and related write-downs for which
adjustments are based on the estimated value of the property or other assets.  F-77




---



##### Table of Contents



NOTE 15  FAIR VALUE MEASUREMENTS
  NOTE 16  EARNINGS (LOSS) PER SHARE
  2010
    
    
    2009
    
    
    2008BasicNet income (loss) attributable to common shares
    
    $
    (14,611,000
    )
    
    $
    (52,889,000
    )
    
    $
    (4,959,000
    )Weighted average common shares outstanding
    
    
    8,507,572
    
    
    
    8,489,679
    
    
    
    8,470,721Basic earnings (loss) per common share
    
    $
    (1.72
    )
    
    $
    (6.23
    )
    
    $
    (0.59
    )DilutedNet income (loss) attributable to common shares
    
    $
    (14,611,000
    )
    
    $
    (52,889,000
    )
    
    $
    (4,959,000
    )Weighted average common shares outstanding for
basic earnings (loss) per common share
    
    
    8,507,572
    
    
    
    8,489,679
    
    
    
    8,470,721Add: Dilutive effects of share-based awards
    
    
    0
    
    
    
    0
    
    
    
    0Average shares and dilutive potential
common shares
    
    
    8,507,572
    
    
    
    8,489,679
    
    
    
    8,470,721Diluted earnings (loss) per common share
    
    $
    (1.72
    )
    
    $
    (6.23
    )
    
    $
    (0.59
    )
      F-78




---



##### Table of Contents



NOTE 17  SUBORDINATED DEBENTURES
   NOTE 18  REGULATORY MATTERS
    F-79




---



##### Table of Contents



NOTE 18  REGULATORY MATTERS
  Minimum Requiredto be WellMinimum Required
    
    Capitalized Underfor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2010Total capital (to risk
weighted assets)Consolidated
    
    $
    175,029
    
    
    
    12.5
    %
    
    $
    112,480
    
    
    
    8.0
    %
    
    $
    NA
    
    
    NABank
    
    
    175,122
    
    
    
    12.5
    
    
    
    112,398
    
    
    
    8.0
    
    
    
    140,497
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    157,111
    
    
    
    11.2
    
    
    
    56,240
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    157,217
    
    
    
    11.2
    
    
    
    56,199
    
    
    
    4.0
    
    
    
    84,299
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    157,111
    
    
    
    9.1
    
    
    
    69,135
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    157,217
    
    
    
    9.1
    
    
    
    69,112
    
    
    
    4.0
    
    
    
    86,389
    
    
    
    5.02009Total capital (to risk
weighted assets)Consolidated
    
    $
    193,157
    
    
    
    11.2
    %
    
    $
    138,169
    
    
    
    8.0
    %
    
    $
    NA
    
    
    NABank
    
    
    191,146
    
    
    
    11.1
    
    
    
    138,051
    
    
    
    8.0
    
    
    
    172,563
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    171,244
    
    
    
    9.9
    
    
    
    69,085
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    169,251
    
    
    
    9.8
    
    
    
    69,026
    
    
    
    4.0
    
    
    
    103,538
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    171,244
    
    
    
    8.6
    
    
    
    79,325
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    169,251
    
    
    
    8.6
    
    
    
    79,119
    
    
    
    4.0
    
    
    
    98,899
    
    
    
    5.0
   F-80




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##### Table of Contents



NOTE 18  REGULATORY MATTERS
  NOTE 19  U.S. TREASURY CAPITAL PURCHASE PROGRAM PARTICIPATION
      F-81




---



##### Table of Contents



NOTE 20  OTHER COMPREHENSIVE INCOME (LOSS)
  2010
    
    
    2009
    
    
    2008Unrealized holding gains (losses) on
available for sale securities
    
    $
    (345,000
    )
    
    $
    (1,269,000
    )
    
    $
    2,761,000Unrealized holding gain on securities transferred
from held to maturity to available for sale
    
    
    421,000
    
    
    
    0
    
    
    
    0Change in net fair value of interest rate swaps
    
    
    0
    
    
    
    0
    
    
    
    2,876,000Reclassification adjustments for gains
later recognized in income
    
    
    (99,000
    )
    
    
    (1,803,000
    )
    
    
    (974,000
    )(23,000
    )
    
    
    (3,072,000
    )
    
    
    4,663,000Tax effect of unrealized holding gains (losses)
on available for sale securities and
unrealized gain on interest rate swaps
    
    
    101,000
    
    
    
    0
    
    
    
    (1,973,000
    )Tax effect of unrealized holding gain on securities
transferred from held to maturity to available
for sale
    
    
    (147,000
    )
    
    
    0
    
    
    
    0Tax effect of reclassification adjustments for
gains later recognized in income
    
    
    35,000
    
    
    
    631,000
    
    
    
    341,000Other comprehensive income (loss)
    
    $
    (34,000
    )
    
    $
    (2,441,000
    )
    
    $
    3,031,000
     F-82




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##### Table of Contents



NOTE 21  QUARTERLY FINANCIAL DATA (UNAUDITED)
 Net Income (Loss)Attributable toInterest
    
    
    Net Interest
    
    
    Common
    
    
    Earnings (Loss) per ShareIncome
    
    
    Income
    
    
    Shares
    
    
    Basic
    
    
    Diluted2010
First quarter
    
    $
    23,189,000
    
    
    $
    14,306,000
    
    
    $
    (2,963,000
    )
    
    $
    (0.35
    )
    
    $
    (0.35
    )Second quarter
    
    
    22,696,000
    
    
    
    14,421,000
    
    
    
    (684,000
    )
    
    
    (0.08
    )
    
    
    (0.08
    )Third quarter
    
    
    21,734,000
    
    
    
    13,935,000
    
    
    
    (5,682,000
    )
    
    
    (0.67
    )
    
    
    (0.67
    )Fourth quarter
    
    
    20,523,000
    
    
    
    13,687,000
    
    
    
    (5,282,000
    )
    
    
    (0.62
    )
    
    
    (0.62
    )2009
First quarter
    
    $
    28,021,000
    
    
    $
    11,805,000
    
    
    $
    (4,489,000
    )
    
    $
    (0.53
    )
    
    $
    (0.53
    )Second quarter
    
    
    26,866,000
    
    
    
    12,450,000
    
    
    
    (6,388,000
    )
    
    
    (0.75
    )
    
    
    (0.75
    )Third quarter
    
    
    25,893,000
    
    
    
    13,567,000
    
    
    
    (5,606,000
    )
    
    
    (0.66
    )
    
    
    (0.66
    )Fourth quarter
    
    
    24,129,000
    
    
    
    13,511,000
    
    
    
    (36,406,000
    )
    
    
    (4.28
    )
    
    
    (4.28
    )2008
First quarter
    
    $
    31,955,000
    
    
    $
    11,383,000
    
    
    $
    (3,738,000
    )
    
    $
    (0.44
    )
    
    $
    (0.44
    )Second quarter
    
    
    29,139,000
    
    
    
    10,592,000
    
    
    
    (2,612,000
    )
    
    
    (0.31
    )
    
    
    (0.31
    )Third quarter
    
    
    29,843,000
    
    
    
    11,728,000
    
    
    
    1,079,000
    
    
    
    0.13
    
    
    
    0.13Fourth quarter
    
    
    30,134,000
    
    
    
    12,505,000
    
    
    
    313,000
    
    
    
    0.04
    
    
    
    0.04
  NOTE
22  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
   2010
    
    
    2009ASSETSCash and cash equivalents
    
    $
    1,233,000
    
    
    $
    1,928,000Investment in bank subsidiary
    
    
    158,043,000
    
    
    
    170,111,000Other assets
    
    
    1,013,000
    
    
    
    1,455,000Total assets
    
    $
    160,289,000
    
    
    $
    173,494,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilities
    
    $
    1,363,000
    
    
    $
    400,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Shareholders equity
    
    
    125,936,000
    
    
    
    140,104,000Total liabilities and shareholders equity
    
    $
    160,289,000
    
    
    $
    173,494,000
  F-83




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##### Table of Contents



NOTE 22  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
  2010
    
    
    2009
    
    
    2008IncomeInterest and dividends from subsidiaries
    
    $
    1,104,000
    
    
    $
    2,852,000
    
    
    $
    4,739,000Total income
    
    
    1,104,000
    
    
    
    2,852,000
    
    
    
    4,739,000ExpensesInterest expense
    
    
    848,000
    
    
    
    1,048,000
    
    
    
    1,914,000Other operating expenses
    
    
    1,551,000
    
    
    
    2,514,000
    
    
    
    2,431,000Total expenses
    
    
    2,399,000
    
    
    
    3,562,000
    
    
    
    4,345,000Income (loss) before income tax expense (benefit) and
equity in undistributed net income (loss) of subsidiary
    
    
    (1,295,000
    )
    
    
    (710,000
    )
    
    
    394,000Federal income tax expense (benefit)
    
    
    (47,000
    )
    
    
    1,767,000
    
    
    
    (1,417,000
    )Equity in undistributed net income (loss) of subsidiary
    
    
    (12,068,000
    )
    
    
    (49,610,000
    )
    
    
    (6,770,000
    )Net income (loss)
    
    
    (13,316,000
    )
    
    
    (52,087,000
    )
    
    
    (4,959,000
    )Preferred stock dividends and accretion
    
    
    1,295,000
    
    
    
    802,000
    
    
    
    0Net income (loss) attributable to common shares
    
    $
    (14,611,000
    )
    
    $
    (52,889,000
    )
    
    $
    (4,959,000
    )
  F-84




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##### Table of Contents



NOTE 22  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
  2010
    
    
    2009
    
    
    2008Cash flows from operating activitiesNet income (loss)
    
    $
    (13,316,000
    )
    
    $
    (52,087,000
    )
    
    $
    (4,959,000
    )Adjustments to reconcile net income (loss) to net
cash from (for) operating activities:Equity in undistributed (income) loss of subsidiary
    
    
    12,068,000
    
    
    
    49,610,000
    
    
    
    6,770,000Stock-based compensation expense
    
    
    275,000
    
    
    
    611,000
    
    
    
    654,000Change in other assets
    
    
    (124,000
    )
    
    
    2,798,000
    
    
    
    (1,023,000
    )Change in other liabilities
    
    
    963,000
    
    
    
    (194,000
    )
    
    
    (661,000
    )Net cash from (for) operating activities
    
    
    (134,000
    )
    
    
    738,000
    
    
    
    779,000Cash flows from investing activitiesNet capital investment into subsidiaries
    
    
    0
    
    
    
    (19,000,000
    )
    
    
    0Net cash for investing activities
    
    
    0
    
    
    
    (19,000,000
    )
    
    
    0Cash flows from financing activitiesProceeds from issuance of preferred stock and
common stock warrant, net
    
    
    0
    
    
    
    20,834,000
    
    
    
    0Employee stock purchase plan
    
    
    47,000
    
    
    
    57,000
    
    
    
    76,000Dividend reinvestment plan
    
    
    2,000
    
    
    
    11,000
    
    
    
    40,000Cash dividends on common stock
    
    
    (85,000
    )
    
    
    (594,000
    )
    
    
    (2,625,000
    )Cash dividends on preferred stock
    
    
    (525,000
    )
    
    
    (525,000
    )
    
    
    0Fractional shares paid
    
    
    0
    
    
    
    0
    
    
    
    0Net cash from (for) financing activities
    
    
    (561,000
    )
    
    
    19,783,000
    
    
    
    (2,509,000
    )Net change in cash and cash equivalents
    
    
    (695,000
    )
    
    
    1,521,000
    
    
    
    (1,730,000
    )Cash and cash equivalents at beginning of period
    
    
    1,928,000
    
    
    
    407,000
    
    
    
    2,137,000Cash and cash equivalents at end of period
    
    $
    1,233,000
    
    
    $
    1,928,000
    
    
    $
    407,000
 F-85




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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/ David M. Cassard
    
    /s/ Merle J. PrinsDavid M. Cassard, Director
    
    Merle J. Prins, Director/s/ Edward J. Clark
    
    /s/ Timothy O. SchadEdward J. Clark, Director
    
    Timothy O. Schad, Director/s/ Doyle A. Hayes
    
    /s/ Dale J. VisserDoyle A. Hayes, Director
    
    Dale J. Visser, Director/s/ Susan K. Jones
    
    /s/ Donald Williams, Sr.Susan K. Jones, Director
    
    Donald Williams, Sr., Director/s/ Lawrence W. Larsen
    
    /s/ Charles E. ChristmasLawrence W. Larsen, Director
    
    Charles E. Christmas, Senior Vice President, Chief
Financial Officer and Treasurer (principal
financial and
accounting officer)/s/ Calvin D. Murdock

Calvin D. Murdock, Director/s/ Michael H. Price

Michael H. Price, Chairman of the Board,
President and Chief Executive Officer
(principal executive 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,
20093.2
    
    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 Michigan Amended and Restated Deferred
Compensation Plan for Members of the Board of Directors dated
June 29, 2006 is incorporated by reference to exhibit 10.9 of
our Form 10-K for the year ended December 31, 200710.8
    
    First Amendment dated October 25, 2007 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 2006 is
incorporated by reference to exhibit 10.10 of our Form 10-K
for the year ended December 31, 200710.9
    
    Second Amendment dated October 23, 2008 to the Mercantile Bank
of Michigan Amended and Restated Deferred Compensation Plan
for Members of the Board of Directors dated June 29, 2007 is
incorporated by reference to exhibit 10.9 of our Form 10-K for
the year ended December 31, 200810.10
    
    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, 199710.11
    
    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 DESCRIPTION10.12
    
    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,
200210.13
    
    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, 2002 is incorporated
by reference to exhibit 10.14 of our Form 10-K for the year
ended December 31, 200710.14
    
    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 *10.15
    
    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 *10.16
    
    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 *10.17
    
    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 *10.18
    
    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 *10.19
    
    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 *10.20
    
    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 *10.21
    
    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, 200410.22
    
    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,
200410.23
    
    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, 200410.24
    
    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, 200410.25
    
    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 *




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.26
    
    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 *10.27
    
    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 *10.28
    
    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 *10.29
    
    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 is incorporated by reference to exhibit 10.34 of our Form
10-K for the year ended December 31, 2007 *10.30
    
    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 is incorporated by reference to
exhibit 10.35 of our Form 10-K for the year ended December 31,
2007 *10.31
    
    Form of Second 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
Michael H. Price, Robert B. Kaminski, Charles E. Christmas,
and certain other officers of our bank, dated October 23, 2008
is incorporated by reference to exhibit 10.34 of our Form 10-K
for the year ended December 31, 2008 *10.32
    
    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 *10.33
    
    Director Fee Summary is incorporated by reference to exhibit
10.33 of our Form 10-K for the year ended December 31, 2009 *10.34
    
    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, 200510.35
    
    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 *10.36
    
    Amendment and Restatement of Stock Incentive Plan of 2006
dated November 18, 2008 is incorporated by reference to
exhibit 10.39 of our Form 10-K for the year ended December 31,
2008 *10.37
    
    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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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.38
    
    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 is incorporated by
reference to exhibit 10.41 of our Form 10-K for the year ended
December 31, 2007 *10.39
    
    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 *10.40
    
    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 is
incorporated by reference to exhibit 10.43 of our Form 10-K
for the year ended December 31, 2007 *10.41
    
    Mercantile Bank Corporation Employee Stock Purchase Plan of
2002 is incorporated by reference to exhibit 10.47 of our Form
10-K for the year ended December 31, 200810.42
    
    First Amendment to Mercantile Bank Corporation Employee Stock
Purchase Plan of 2002 is incorporated by reference to exhibit
4(c) of our Registration Statement on Form S-8 (Commission
File No. 333-158280) that became effective on March 30, 200910.43
    
    Second Amendment to Mercantile Bank Corporation Employee Stock
Purchase Plan of 2002 is incorporated by reference to exhibit
4(d) of our Registration Statement on Form S-8 (Commission
File No. 333-158280) that became effective on March 30, 200910.44
    
    Lease Agreement between our bank and CD Partners LLC dated
October 2, 2007 for our Oakland County, Michigan office is
incorporated by reference to exhibit 10.47 of our Form 10-K
for the year ended December 31, 200710.45
    
    Letter Agreement, dated as of May 15, 2009, between Mercantile
Bank Corporation and the United States Department of the
Treasury, including the Securities Purchase Agreement 
Standard Terms and Schedules is incorporated by reference to
exhibit 10.1 of our Form 8-K filed May 15, 200910.46
    
    Side Letter Agreement, dated as of May 15, 2009, between
Mercantile Bank Corporation and the United States Department
of the Treasury regarding the American Recovery and
Reinvestment Act of 2009 is incorporated by reference to
exhibit 10.2 of our Form 8-K filed May 15, 200910.47
    
    Amendment to Employment Agreements, dated May 15, 2009, by and
among Mercantile Bank Corporation, Mercantile Bank of
Michigan, Michael H. Price, Robert B. Kaminski, Jr. and
Charles E. Christmas is incorporated by reference to exhibit
10.3 of our Form 8-K filed May 15, 2009 *10.48
    
    Form of Waiver executed by each of Michael H. Price, Robert B.
Kaminski, Jr. and Charles E. Christmas is incorporated by
reference to exhibit 10.4 of our Form 8-K filed May 15, 200910.49
    
    Amendment to Commercial Lease between our bank and Jerry
Helmer and Ruthann Helmer dated August 14, 2007 for our Ann
Arbor, Michigan office is incorporated by reference to exhibit
10.5 of our Form 10-Q for the quarter ended June 30, 2009




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.50
    
    Termination of Lease Agreement between our bank and CD
Partners LLC dated May 21, 2009 for our Oakland County,
Michigan office is incorporated by reference to exhibit 10.6
of our Form 10-Q for the quarter ended June 30, 200910.51
    
    Termination of Lease Agreement between our bank and Jerry
Helmer and Ruthann Helmer dated July 22, 2009 for our Ann
Arbor, Michigan office is incorporated by reference to exhibit
10.7 of our Form 10-Q for the quarter ended June 30, 200910.52
    
    Warrant to Purchase Common Stock of Mercantile Bank
Corporation, dated May 15, 2009 is incorporated by reference
to exhibit 4.2 of our Form 8-K filed May 15, 200921
    
    Subsidiaries of the company is incorporated by reference to
exhibit 21 of our Form 10-K for the year ended December 31,
200823
    
    Consent of BDO USA, LLP31
    
    Rule 13a-14(a) Certifications32.1
    
    Section 1350 Chief Executive Officer Certification32.2
    
    Section 1350 Chief Financial Officer Certification99.1
    
    Certification of our principal executive officer and principal
financial officer relating to our participation in the Capital
Purchase Program of the Troubled Asset Relief Program
 
 *
    
    Management contract or compensatory plan