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, 2008
 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 classCommon Stock
    
    Name of each exchange on which registeredThe Nasdaq Stock Market LLC
  o þ
 o þ
 þ o
 o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o 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
  The Mercantile Trust
  3.




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Effect of Government Monetary Policies
  Regulation and Supervision
      4.




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Employees
  Lending Policy
     Lending Activity
 Commercial Loans.
 5.




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




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




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Investments
 Bank Holding Company Investments
   8.




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




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Item 1A. Risk Factors.
  Difficult market conditions have adversely affected our industry.
  Current levels of market volatility are unprecedented.
  Adverse changes in economic conditions or interest rates may negatively affect our earnings,
capital and liquidity.
  10.




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The soundness of other financial institutions could adversely affect us.
  There can be no assurance that recently enacted legislation will stabilize the U.S. financial
system.
  The impact on us of recently enacted legislation, in particular the Emergency Economic
Stabilization Act of 2008 and its implementing regulations, and actions by the FDIC, cannot be
predicted at this time.
  11.




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Our credit losses could increase and our allowance for loan and lease losses may not be adequate to
cover actual loan losses.
  We rely heavily on our management and other key personnel, and the loss of any of them may
adversely affect our operations.
    Decline in the availability of out-of-area deposits could cause liquidity or interest rate margin
concerns, or limit our growth.
  12.




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Future sales of our common stock or other securities may dilute the value of our common stock.
  Our growth and expansion may be limited by many factors.
   Our future success is dependent on our ability to compete effectively in the highly competitive
banking industry.
  13.




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We are subject to significant government regulation, and any regulatory changes may adversely
affect us.
  We continually encounter technological change, and we may have fewer resources than our competitors
to continue to invest in technological improvements.
  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.
  14.




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Our business is subject to operational risks.
   Item 1B. Unresolved Staff Comments
  Item 2. Properties.
   15.




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th
    Item 3. Legal Proceedings.
  16.




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Item 4. Submission of Matters to a Vote of Security Holders.
  PART II
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
   High
    
    Low
    
    Dividend2008First Quarter
    
    $
    16.19
    
    
    $
    10.19
    
    
    $
    0.15Second Quarter
    
    
    11.40
    
    
    
    7.10
    
    
    
    0.08Third Quarter
    
    
    10.09
    
    
    
    4.82
    
    
    
    0.04Fourth Quarter
    
    
    9.69
    
    
    
    4.00
    
    
    
    0.042007First Quarter
    
    $
    36.62
    
    
    $
    29.30
    
    
    $
    0.13Second Quarter
    
    
    31.43
    
    
    
    26.59
    
    
    
    0.14Third Quarter
    
    
    27.40
    
    
    
    19.86
    
    
    
    0.14Fourth Quarter
    
    
    22.70
    
    
    
    14.49
    
    
    
    0.14
     17.




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Period EndingIndex
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07
    
    12/31/08Mercantile Bank Corporation
    
    
    100.00
    
    
    
    114.78
    
    
    
    118.66
    
    
    
    123.62
    
    
    
    54.67
    
    
    
    15.60NASDAQ Composite
    
    
    100.00
    
    
    
    108.59
    
    
    
    110.08
    
    
    
    120.56
    
    
    
    132.39
    
    
    
    78.72SNL Bank NASDAQ
    
    
    100.00
    
    
    
    114.61
    
    
    
    111.12
    
    
    
    124.75
    
    
    
    97.94
    
    
    
    71.13
 Item 6. Selected Financial Data.
  18.




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Item 8. Financial Statements and Supplementary Data.
  Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  Item 9A. Controls and Procedures.
    Internal Control
 Integrated Framework Internal Control  Integrated Framework
  Item 9B. Other Information.
  19.




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PART III
 Item 10. Directors, Executive Officers and Corporate Governance.
   Item 11. Executive Compensation.
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  20.




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Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    Weighted average
    
    equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options,
    
    securities reflected inPlan Category
    
    warrants and rights
    
    warrants and rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
(1)
    
    
    325,434
    
    
    $
    20.49
    
    
    
    396,000
    (2)Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    325,434
    
    
    $
    20.49
    
    
    
    396,000
 
 (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.
  21.




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PART IV
 Item 15. Exhibits and Financial Statement Schedules
  Report of Independent Registered Public Accounting Firm dated March 11, 2009  BDO
Seidman, LLPReport of Independent Registered Public Accounting Firm dated February 20, 2007  Crowe
Horwath LLPConsolidated Balance Sheets - December 31, 2008 and 2007Consolidated Statements of Income for each of the three years in the period ended December
31, 2008Consolidated Statements of Changes in Shareholders Equity for each of the three years in
the period ended December 31, 2008Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2008Notes to Consolidated Financial StatementsThe consolidated financial statements, the notes to the consolidated financial statements,
and the reports of independent registered public accounting firm listed above are
incorporated by reference in Item 8 of this report.(2)
    
    Financial Statement SchedulesNot applicable
 (b)
    
    Exhibits:
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    Our Articles of Incorporation are incorporated by reference to
exhibit 3.1 of our Form 10-Q for the quarter ended June 30,
20083.2
    
    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 *
 22.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.4
    
    Form of Stock Option Agreement for options under the 2004
Employee Stock Option Plan is incorporated by reference to
exhibit 10.2 of our Form 10-Q for the quarter ended September
30, 2004 *10.5
    
    Our Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.26 of our Form 10-K for the year ended
December 31, 2002 *10.6
    
    Form of Stock Option Agreement for options under the
Independent Director Stock Option Plan is incorporated by
reference to exhibit 10.1 of our Form 8-K filed October 22,
2004 *10.7
    
    Mercantile Bank of 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, 200710.10
    
    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 Gerald R. Johnson,
Jr., is incorporated by reference to exhibit 10.21 of our Form
10-K for the year ended December 31, 2001 *
 23.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.15
    
    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 *10.16
    
    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 *10.17
    
    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 *10.18
    
    Amendment to Employment Agreement dated as of October 17, 2002,
among the company, our bank and Gerald R. Johnson, Jr., is
incorporated by reference to exhibit 10.21 of our Form 10-K for
the year ended December 31, 2002 *10.19
    
    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 *10.20
    
    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 *10.21
    
    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 *10.22
    
    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 *10.23
    
    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, 200410.24
    
    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,
200410.25
    
    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, 200410.26
    
    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, 200410.27
    
    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 *
 24.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.28
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Gerald R. Johnson,
Jr. is incorporated by reference to exhibit 10.28 of our Form
10-K for the year ended December 31, 2005 *10.29
    
    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 *10.30
    
    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 *10.31
    
    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 *10.32
    
    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 *10.33
    
    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 *10.34
    
    Form of Second Amendment to the Mercantile Bank of Michigan
Executive Deferred Compensation Agreement date 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 *10.35
    
    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 *10.36
    
    Director Fee Summary *10.37
    
    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, 200510.38
    
    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 *
 25.




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.39
    
    Amendment and Restatement of Stock Incentive Plan of 2006 dated
November 18, 2008 *10.40
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted in 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed November 22,
2006 *10.41
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted after 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.41 of our Form 10-K for the year ended
December 31, 2007 *10.42
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
in 2006 under our Stock Incentive Plan of 2006 is incorporated
by reference to exhibit 10.2 of our Form 8-K filed November 22,
2006 *10.43
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
after 2006 under our Stock Incentive Plan of 2006 is
incorporated by reference to exhibit 10.43 of our Form 10-K for
the year ended December 31, 2007 *10.44
    
    Executive Officer Bonus Plan for 2007 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed January 29,
2007 *10.45
    
    Retirement Agreement by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 8-K filed
May 25, 2007 *10.46
    
    Additional Release of Claims Pursuant to Retirement Agreement
Dated May 24, 2007 by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 10-Q for
the quarter ended September 30, 2007 *10.47
    
    Mercantile Bank Corporation Employee Stock Purchase Plan of 200210.48
    
    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, 200721
    
    Subsidiaries of the company23.1
    
    Consent of BDO Seidman, LLP23.2
    
    Consent of Crowe Horwath LLP31
    
    Rule 13a-14(a) Certifications32.1
    
    Section 1350 Chief Executive Officer Certification32.2
    
    Section 1350 Chief Financial Officer Certification
 26.




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*
    
    Management contract or compensatory plan (c)
    
    Financial Statements Not Included In Annual ReportNot applicable
 27.




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MERCANTILE BANK CORPORATION
 FINANCIAL INFORMATION
 F-1




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SELECTED FINANCIAL DATA
    
    
    F-3MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    F-4REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    
    F-29REPORT BY MERCANTILE BANK CORPORATIONS MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
    
    
    F-32CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    F-33CONSOLIDATED STATEMENTS OF INCOME
    
    
    F-34CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    
    
    F-35CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-37NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-39
  F-2




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SELECTED FINANCIAL DATA
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands except per share data)Consolidated Results of Operations:Interest income
    
    $
    121,072
    
    
    $
    144,181
    
    
    $
    137,260
    
    
    $
    102,130
    
    
    $
    69,022Interest expense
    
    
    74,863
    
    
    
    88,624
    
    
    
    75,673
    
    
    
    46,838
    
    
    
    26,595Net interest income
    
    
    46,209
    
    
    
    55,557
    
    
    
    61,587
    
    
    
    55,292
    
    
    
    42,427Provision for loan and lease losses
    
    
    21,200
    
    
    
    11,070
    
    
    
    5,775
    
    
    
    3,790
    
    
    
    4,674Noninterest income
    
    
    7,282
    
    
    
    5,870
    
    
    
    5,261
    
    
    
    5,661
    
    
    
    4,302Noninterest expense
    
    
    42,126
    
    
    
    38,356
    
    
    
    32,262
    
    
    
    31,117
    
    
    
    23,198Income (loss) before income tax expense (benefit)
    
    
    (9,835
    )
    
    
    12,001
    
    
    
    28,811
    
    
    
    26,046
    
    
    
    18,857Income tax expense (benefit)
    
    
    (4,876
    )
    
    
    3,035
    
    
    
    8,964
    
    
    
    8,145
    
    
    
    5,136Net income (loss)
    
    $
    (4,959
    )
    
    $
    8,966
    
    
    $
    19,847
    
    
    $
    17,901
    
    
    $
    13,721Consolidated Balance Sheet Data:Total assets
    
    $
    2,208,010
    
    
    $
    2,121,403
    
    
    $
    2,067,268
    
    
    $
    1,838,210
    
    
    $
    1,536,119Cash and cash equivalents
    
    
    25,804
    
    
    
    29,430
    
    
    
    51,380
    
    
    
    36,753
    
    
    
    20,811Securities
    
    
    242,787
    
    
    
    211,736
    
    
    
    202,419
    
    
    
    181,614
    
    
    
    152,965Loans and leases, net of deferred fees
    
    
    1,856,915
    
    
    
    1,799,880
    
    
    
    1,745,478
    
    
    
    1,561,812
    
    
    
    1,317,124Allowance for loan and lease losses
    
    
    27,108
    
    
    
    25,814
    
    
    
    21,411
    
    
    
    20,527
    
    
    
    17,819Bank owned life insurance policies
    
    
    42,462
    
    
    
    39,118
    
    
    
    30,858
    
    
    
    28,071
    
    
    
    23,750Deposits
    
    
    1,599,575
    
    
    
    1,591,181
    
    
    
    1,646,903
    
    
    
    1,419,352
    
    
    
    1,159,181Securities sold under agreements to repurchase
    
    
    94,413
    
    
    
    97,465
    
    
    
    85,472
    
    
    
    72,201
    
    
    
    56,317Federal Home Loan Bank advances
    
    
    270,000
    
    
    
    180,000
    
    
    
    95,000
    
    
    
    130,000
    
    
    
    120,000Subordinated debentures
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990
    
    
    
    32,990Shareholders equity
    
    
    174,372
    
    
    
    178,155
    
    
    
    171,915
    
    
    
    155,125
    
    
    
    141,617Consolidated Financial Ratios:Return on average assets
    
    
    (0.23
    )%
    
    
    0.43
    %
    
    
    1.01
    %
    
    
    1.05
    %
    
    
    0.99
    %Return on average shareholders equity
    
    
    (2.87
    )%
    
    
    5.10
    %
    
    
    12.19
    %
    
    
    12.05
    %
    
    
    10.16
    %Average shareholders equity to average assets
    
    
    8.01
    %
    
    
    8.44
    %
    
    
    8.31
    %
    
    
    8.73
    %
    
    
    9.79
    %Nonperforming loans and leases to total loans and leases
    
    
    2.66
    %
    
    
    1.66
    %
    
    
    0.49
    %
    
    
    0.26
    %
    
    
    0.22
    %Allowance for loan and lease losses to total loans and leases
    
    
    1.46
    %
    
    
    1.43
    %
    
    
    1.23
    %
    
    
    1.31
    %
    
    
    1.35
    %Tier 1 leverage capital
    
    
    9.17
    %
    
    
    9.97
    %
    
    
    10.04
    %
    
    
    10.45
    %
    
    
    11.53
    %Tier 1 leverage risk-based capital
    
    
    9.68
    %
    
    
    10.14
    %
    
    
    10.37
    %
    
    
    10.82
    %
    
    
    11.82
    %Total risk-based capital
    
    
    10.93
    %
    
    
    11.39
    %
    
    
    11.45
    %
    
    
    12.00
    %
    
    
    13.03
    %Per Share Data:Net income (loss):Basic
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.36
    
    
    $
    2.14
    
    
    $
    1.65Diluted
    
    
    (0.59
    )
    
    
    1.06
    
    
    
    2.33
    
    
    
    2.10
    
    
    
    1.61Book value at end of period
    
    
    20.29
    
    
    
    20.89
    
    
    
    21.43
    
    
    
    19.46
    
    
    
    17.78Dividends declared
    
    
    0.31
    
    
    
    0.55
    
    
    
    0.48
    
    
    
    0.39
    
    
    
    0.30Dividend payout ratio
    
    NA
    
    
    
    52.16
    %
    
    
    20.34
    %
    
    
    17.79
    %
    
    
    18.60
    %
 F-3




---



##### 



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




---



##### 



Income Tax Accounting
 INTRODUCTION
    F-5




---



##### 



FINANCIAL CONDITION
  Earning Assets
   F-6




---



##### 



Residential  Vacant Land
    
    $
    21,374,000Residential  Land Development
    
    
    54,055,000Residential  Construction
    
    
    16,839,000Commercial  Vacant Land
    
    
    29,269,000Commercial  Land Development
    
    
    24,629,000Commercial  Construction NonOwner Occupied
    
    
    102,464,000Commercial  Construction Owner Occupied
    
    
    9,344,000Commercial  NonOwner Occupied
    
    
    558,360,000Commercial  Owner Occupied
    
    
    370,099,000Total
    
    $
    1,186,433,000
   0-1
    
    
    1-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    TotalConstruction and land development
    
    $
    183,749,000
    
    
    $
    79,285,000
    
    
    $
    358,000
    
    
    $
    263,392,000Real estate  secured by 1-4 family
properties
    
    
    69,079,000
    
    
    
    57,214,000
    
    
    
    14,483,000
    
    
    
    140,776,000Real estate  secured by multi-family
properties
    
    
    31,107,000
    
    
    
    13,784,000
    
    
    
    2,474,000
    
    
    
    47,365,000Real estate  secured by
nonresidential properties
    
    
    360,096,000
    
    
    
    477,023,000
    
    
    
    44,231,000
    
    
    
    881,350,000Commercial
    
    
    368,926,000
    
    
    
    132,709,000
    
    
    
    14,566,000
    
    
    
    516,201,000Leases
    
    
    143,000
    
    
    
    1,842,000
    
    
    
    0
    
    
    
    1,985,000Consumer
    
    
    2,447,000
    
    
    
    2,808,000
    
    
    
    591,000
    
    
    
    5,846,000$
    1,015,547,000
    
    
    $
    764,665,000
    
    
    $
    76,703,000
    
    
    $
    1,856,915,000Fixed rate loans
    
    $
    318,977,000
    
    
    $
    764,422,000
    
    
    $
    63,223,000
    
    
    $
    1,146,622,000Floating rate loans
    
    
    696,570,000
    
    
    
    243,000
    
    
    
    13,480,000
    
    
    
    710,293,000$
    1,015,547,000
    
    
    $
    764,665,000
    
    
    $
    76,703,000
    
    
    $
    1,856,915,000
 F-7




---



##### 



F-8




---



##### 



Nonperforming
    
    
    Net LoanAssets
    
    
    Charge-OffsResidential  Land Development
    
    $
    14,273,000
    
    
    $
    2,624,000Residential  Construction
    
    
    11,040,000
    
    
    
    604,000Residential  Owner Occupied / Rental
    
    
    4,160,000
    
    
    
    2,850,000Commercial  Land Development
    
    
    2,234,000
    
    
    
    1,599,000Commercial  Owner Occupied
    
    
    6,495,000
    
    
    
    789,000Commercial  NonOwner Occupied
    
    
    14,055,000
    
    
    
    5,710,000Commercial  NonReal Estate
    
    
    5,134,000
    
    
    
    5,688,000Consumer  NonReal Estate
    
    
    30,000
    
    
    
    42,000Total
    
    $
    57,421,000
    
    
    $
    19,906,000
  December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004Loans and leases on
nonaccrual status
    
    $
    47,945,000
    
    
    $
    28,832,000
    
    
    $
    7,752,000
    
    
    $
    3,601,000
    
    
    $
    2,842,000Loans and leases 90
days or more past
due and accruing
interest
    
    
    1,358,000
    
    
    
    977,000
    
    
    
    819,000
    
    
    
    394,000
    
    
    
    0Troubled debt
restructurings
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    49,303,000
    
    
    $
    29,809,000
    
    
    $
    8,571,000
    
    
    $
    3,995,000
    
    
    $
    2,842,000
 F-9




---



##### 



2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Loan and leases outstanding at year-end
    
    $
    1,856,915,000
    
    
    $
    1,799,880,000
    
    
    $
    1,745,478,000
    
    
    $
    1,561,812,000
    
    
    $
    1,317,124,000Daily average balance of loans and
leases outstanding
    
    $
    1,829,686,000
    
    
    $
    1,765,465,000
    
    
    $
    1,660,284,000
    
    
    $
    1,432,609,000
    
    
    $
    1,177,568,000Balance of allowance at beginning of
year
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000
    
    
    $
    17,819,000
    
    
    $
    14,379,000Loans and leases charged-off:Commercial, financial and agricultural
    
    
    (12,566,000
    )
    
    
    (4,232,000
    )
    
    
    (5,208,000
    )
    
    
    (718,000
    )
    
    
    (1,328,000
    )Construction and land development
    
    
    (4,835,000
    )
    
    
    (1,353,000
    )
    
    
    0
    
    
    
    (521,000
    )
    
    
    0Leases
    
    
    (174,000
    )
    
    
    (18,000
    )
    
    
    0
    
    
    
    0
    
    
    
    0Residential real estate
    
    
    (2,900,000
    )
    
    
    (1,618,000
    )
    
    
    (50,000
    )
    
    
    (131,000
    )
    
    
    (16,000
    )Instalment loans to individuals
    
    
    (119,000
    )
    
    
    (53,000
    )
    
    
    (131,000
    )
    
    
    (22,000
    )
    
    
    (61,000
    )Total loans and leases charged-off
    
    
    (20,594,000
    )
    
    
    (7,274,000
    )
    
    
    (5,389,000
    )
    
    
    (1,392,000
    )
    
    
    (1,405,000
    )Recoveries of previously charged-off
loans and leases:Commercial, financial and agricultural
    
    
    597,000
    
    
    
    586,000
    
    
    
    487,000
    
    
    
    298,000
    
    
    
    150,000Construction and land development
    
    
    8,000
    
    
    
    11,000
    
    
    
    0
    
    
    
    2,000
    
    
    
    0Leases
    
    
    6,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Residential real estate
    
    
    51,000
    
    
    
    3,000
    
    
    
    2,000
    
    
    
    6,000
    
    
    
    0Instalment loans to individuals
    
    
    26,000
    
    
    
    7,000
    
    
    
    9,000
    
    
    
    4,000
    
    
    
    21,000Total recoveries
    
    
    688,000
    
    
    
    607,000
    
    
    
    498,000
    
    
    
    310,000
    
    
    
    171,000Net charge-offs
    
    
    (19,906,000
    )
    
    
    (6,667,000
    )
    
    
    (4,891,000
    )
    
    
    (1,082,000
    )
    
    
    (1,234,000
    )Provision for loan and leases losses
    
    
    21,200,000
    
    
    
    11,070,000
    
    
    
    5,775,000
    
    
    
    3,790,000
    
    
    
    4,674,000Balance of allowance at year-end
    
    $
    27,108,000
    
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000
    
    
    $
    17,819,000Ratio of net charge-offs during the
period to average loans and leases
outstanding during the period
    
    
    (1.09
    %)
    
    
    (0.38
    %)
    
    
    (0.29
    %)
    
    
    (0.08
    %)
    
    
    (0.10
    %)Ratio of allowance to loans and leases
outstanding at end of the period
    
    
    1.46
    %
    
    
    1.43
    %
    
    
    1.23
    %
    
    
    1.31
    %
    
    
    1.35
    %
   F-10




---



##### 



December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    LoanAmount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    PortfolioCommercial,
financial and
agricultural
    
    $
    20,170
    
    
    
    77.9
    %
    
    $
    18,947
    
    
    
    77.4
    %
    
    $
    15,706
    
    
    
    74.7
    %
    
    $
    16,507
    
    
    
    76.9
    %
    
    $
    15,457
    
    
    
    79.8
    %Construction and
land development
    
    
    5,137
    
    
    
    14.1
    
    
    
    4,907
    
    
    
    14.7
    
    
    
    3,975
    
    
    
    17.1
    
    
    
    2,868
    
    
    
    14.5
    
    
    
    1,581
    
    
    
    10.3Leases
    
    
    41
    
    
    
    0.1
    
    
    
    29
    
    
    
    0.1
    
    
    
    15
    
    
    
    0.1
    
    
    
    30
    
    
    
    0.1
    
    
    
    39
    
    
    
    0.2Residential real
estate
    
    
    1,656
    
    
    
    7.6
    
    
    
    1,829
    
    
    
    7.5
    
    
    
    1,591
    
    
    
    7.6
    
    
    
    1,020
    
    
    
    8.2
    
    
    
    557
    
    
    
    9.3Instalment loans to
individuals
    
    
    104
    
    
    
    0.3
    
    
    
    102
    
    
    
    0.3
    
    
    
    124
    
    
    
    0.5
    
    
    
    102
    
    
    
    0.3
    
    
    
    185
    
    
    
    0.4Unallocated
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0Total
    
    $
    27,108
    
    
    
    100.0
    %
    
    $
    25,814
    
    
    
    100.0
    %
    
    $
    21,411
    
    
    
    100.0
    %
    
    $
    20,527
    
    
    
    100.0
    %
    
    $
    17,819
    
    
    
    100.0
    %
    F-11




---



##### 



December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006Carrying Value
    
    
    Percentage
    
    
    Carrying Value
    
    
    Percentage
    
    
    Carrying Value
    
    
    PercentageU.S. Government
agency debt
obligations
    
    $
    62,382,000
    
    
    
    27.5
    %
    
    $
    80,945,000
    
    
    
    40.1
    %
    
    $
    76,836,000
    
    
    
    39.4
    %Mortgage-backed
securities
    
    
    77,026,000
    
    
    
    33.9
    
    
    
    54,619,000
    
    
    
    27.0
    
    
    
    53,083,000
    
    
    
    27.2Municipal general
obligations
    
    
    56,893,000
    
    
    
    25.1
    
    
    
    57,668,000
    
    
    
    28.5
    
    
    
    56,870,000
    
    
    
    29.2Municipal revenue
bonds
    
    
    7,544,000
    
    
    
    3.3
    
    
    
    7,662,000
    
    
    
    3.8
    
    
    
    7,073,000
    
    
    
    3.6Michigan Strategic
Fund bonds
    
    
    22,105,000
    
    
    
    9.7
    
    
    
    0
    
    
    
    0.0
    
    
    
    0
    
    
    
    0.0Mutual fund
    
    
    1,156,000
    
    
    
    0.5
    
    
    
    1,109,000
    
    
    
    0.6
    
    
    
    1,048,000
    
    
    
    0.6Total
    
    $
    227,106,000
    
    
    
    100.0
    %
    
    $
    202,003,000
    
    
    
    100.0
    %
    
    $
    194,910,000
    
    
    
    100.0
    %
 Accounting for Certain Investments in Debt and Equity Securities
  F-12




---



##### 



(1)
 Carrying
    
    
    AverageValue
    
    
    YieldU.S. Treasury securities and obligations of U.S.
Government agencies and corporationsOne year or less
    
    $
    0
    
    
    NAOver one through five years
    
    
    12,235,000
    
    
    
    4.70
    %Over five through ten years
    
    
    17,065,000
    
    
    
    5.29Over ten years
    
    
    33,082,000
    
    
    
    5.3362,382,000
    
    
    
    5.20Obligations of states and political subdivisionsOne year or less
    
    
    1,884,000
    
    
    
    6.64Over one through five years
    
    
    10,457,000
    
    
    
    6.73Over five through ten years
    
    
    13,496,000
    
    
    
    6.57Over ten years
    
    
    38,600,000
    
    
    
    6.3564,437,000
    
    
    
    6.47Mortgage-backed securities
    
    
    77,026,000
    
    
    
    5.16Michigan Strategic Fund bonds
    
    
    22,105,000
    
    
    
    2.99Mutual fund
    
    
    1,156,000
    
    
    
    4.00$
    227,106,000
    
    
    
    5.32
    %
 
 (1)
    
    Yields on tax-exempt securities are computed on a fully taxable-equivalent basis.  Non-Earning Assets
   F-13




---



##### 



Source of Funds
       F-14




---



##### 



RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007
 Summary
   2008
    
    2007Return on average assets
    
    
    (0.23
    )%
    
    
    0.43
    %Return on average shareholders equity
    
    
    (2.87
    )
    
    
    5.10Dividend payout ratio
    
    
    NA
    
    
    
    52.16Average shareholders equity to average assets
    
    
    8.01
    
    
    
    8.44
 Net Interest Income
  F-15




---



##### 



F-16




---



##### 



Years ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateTaxable securities
    
    $
    147,668
    
    
    $
    7,888
    
    
    
    5.34
    %
    
    $
    141,289
    
    
    $
    7,243
    
    
    
    5.13
    %
    
    $
    128,382
    
    
    $
    6,557
    
    
    
    5.11
    %Tax-exempt
securities
    
    
    69,857
    
    
    
    4,180
    
    
    
    5.98
    
    
    
    64,122
    
    
    
    4,013
    
    
    
    6.26
    
    
    
    61,949
    
    
    
    3,930
    
    
    
    6.34Total securities
    
    
    217,525
    
    
    
    12,068
    
    
    
    5.55
    
    
    
    205,411
    
    
    
    11,256
    
    
    
    5.48
    
    
    
    190,331
    
    
    
    10,487
    
    
    
    5.51Loans and leases
    
    
    1,829,686
    
    
    
    110,013
    
    
    
    6.01
    
    
    
    1,765,465
    
    
    
    133,685
    
    
    
    7.57
    
    
    
    1,660,284
    
    
    
    127,470
    
    
    
    7.68Short-term
investments
    
    
    392
    
    
    
    7
    
    
    
    1.79
    
    
    
    510
    
    
    
    20
    
    
    
    3.92
    
    
    
    320
    
    
    
    12
    
    
    
    3.75Federal funds sold
    
    
    11,353
    
    
    
    204
    
    
    
    1.80
    
    
    
    8,239
    
    
    
    420
    
    
    
    5.10
    
    
    
    9,745
    
    
    
    482
    
    
    
    4.95Total earning
assets
    
    
    2,058,956
    
    
    
    122,292
    
    
    
    5.94
    
    
    
    1,979,625
    
    
    
    145,381
    
    
    
    7.34
    
    
    
    1,860,680
    
    
    
    138,451
    
    
    
    7.44Allowance for loan
and lease losses
    
    
    (30,184
    )
    
    
    
    
    
    
    
    
    
    
    (23,157
    )
    
    
    
    
    
    
    
    
    
    
    (21,464
    )Cash and due
from banks
    
    
    21,004
    
    
    
    
    
    
    
    
    
    
    
    33,099
    
    
    
    
    
    
    
    
    
    
    
    38,298Other non-earning
assets
    
    
    107,546
    
    
    
    
    
    
    
    
    
    
    
    94,279
    
    
    
    
    
    
    
    
    
    
    
    82,419Total assets
    
    $
    2,157,322
    
    
    
    
    
    
    
    
    
    
    $
    2,083,846
    
    
    
    
    
    
    
    
    
    
    $
    1,959,933Interest-bearing
demand deposits
    
    $
    42,734
    
    
    $
    492
    
    
    
    1.15
    %
    
    $
    37,143
    
    
    $
    1,047
    
    
    
    2.82
    %
    
    $
    36,530
    
    
    $
    1,069
    
    
    
    2.93
    %Savings deposits
    
    
    65,091
    
    
    
    922
    
    
    
    1.42
    
    
    
    86,009
    
    
    
    2,977
    
    
    
    3.46
    
    
    
    93,046
    
    
    
    3,328
    
    
    
    3.58Money market
accounts
    
    
    13,948
    
    
    
    192
    
    
    
    1.38
    
    
    
    11,706
    
    
    
    359
    
    
    
    3.07
    
    
    
    10,326
    
    
    
    325
    
    
    
    3.15Time deposits
    
    
    1,332,071
    
    
    
    58,206
    
    
    
    4.37
    
    
    
    1,385,260
    
    
    
    71,838
    
    
    
    5.19
    
    
    
    1,289,777
    
    
    
    60,033
    
    
    
    4.65Total interest-bearing deposits
    
    
    1,453,844
    
    
    
    59,812
    
    
    
    4.11
    
    
    
    1,520,118
    
    
    
    76,221
    
    
    
    5.01
    
    
    
    1,429,679
    
    
    
    64,755
    
    
    
    4.53Short-term
borrowings
    
    
    97,313
    
    
    
    2,021
    
    
    
    2.08
    
    
    
    93,307
    
    
    
    3,493
    
    
    
    3.74
    
    
    
    75,885
    
    
    
    2,867
    
    
    
    3.78Federal Home Loan
Bank advances
    
    
    258,939
    
    
    
    10,554
    
    
    
    4.08
    
    
    
    118,904
    
    
    
    6,100
    
    
    
    5.13
    
    
    
    121,932
    
    
    
    5,393
    
    
    
    4.42Long-term
borrowings
    
    
    46,579
    
    
    
    2,476
    
    
    
    5.32
    
    
    
    36,610
    
    
    
    2,810
    
    
    
    7.68
    
    
    
    35,895
    
    
    
    2,658
    
    
    
    7.40Total interest-bearing liabilities
    
    
    1,856,675
    
    
    
    74,863
    
    
    
    4.03
    
    
    
    1,768,939
    
    
    
    88,624
    
    
    
    5.01
    
    
    
    1,663,391
    
    
    
    75,673
    
    
    
    4.55Demand deposits
    
    
    108,584
    
    
    
    
    
    
    
    
    
    
    
    115,172
    
    
    
    
    
    
    
    
    
    
    
    115,390Other liabilities
    
    
    19,286
    
    
    
    
    
    
    
    
    
    
    
    23,838
    
    
    
    
    
    
    
    
    
    
    
    18,371Total liabilities
    
    
    1,984,545
    
    
    
    
    
    
    
    
    
    
    
    1,907,949
    
    
    
    
    
    
    
    
    
    
    
    1,797,152Average equity
    
    
    172,777
    
    
    
    
    
    
    
    
    
    
    
    175,897
    
    
    
    
    
    
    
    
    
    
    
    162,781Total liabilities
and equity
    
    $
    2,157,322
    
    
    
    
    
    
    
    
    
    
    $
    2,083,846
    
    
    
    
    
    
    
    
    
    
    $
    1,959,933Net interest
income
    
    
    
    
    
    $
    47,429
    
    
    
    
    
    
    
    
    
    
    $
    56,757
    
    
    
    
    
    
    
    
    
    
    $
    62,778Rate spread
    
    
    
    
    
    
    
    
    
    
    1.91
    %
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Net interest
margin
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    2.87
    %
    
    
    
    
    
    
    
    
    
    
    3.37
    %
 F-17




---



##### 



Years ended December 31,2008 over 2007
    
    
    2007 over 2006Total
    
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    RateIncrease (decrease) in interest incomeTaxable securities
    
    $
    645,000
    
    
    $
    334,000
    
    
    $
    311,000
    
    
    $
    686,000
    
    
    $
    662,000
    
    
    $
    24,000Tax exempt securities
    
    
    167,000
    
    
    
    348,000
    
    
    
    (181,000
    )
    
    
    83,000
    
    
    
    136,000
    
    
    
    (53,000
    )Loans
    
    
    (23,672,000
    )
    
    
    4,713,000
    
    
    
    (28,385,000
    )
    
    
    6,215,000
    
    
    
    7,984,000
    
    
    
    (1,769,000
    )Short term investments
    
    
    (13,000
    )
    
    
    (4,000
    )
    
    
    (9,000
    )
    
    
    8,000
    
    
    
    7,000
    
    
    
    1,000Federal funds sold
    
    
    (216,000
    )
    
    
    121,000
    
    
    
    (337,000
    )
    
    
    (62,000
    )
    
    
    (76,000
    )
    
    
    14,000Net change in tax-equivalent
income
    
    
    (23,089,000
    )
    
    
    5,512,000
    
    
    
    (28,601,000
    )
    
    
    6,930,000
    
    
    
    8,713,000
    
    
    
    (1,783,000
    )Increase (decrease) in interest expenseInterest-bearing demand deposits
    
    
    (555,000
    )
    
    
    139,000
    
    
    
    (694,000
    )
    
    
    (22,000
    )
    
    
    18,000
    
    
    
    (40,000
    )Savings deposits
    
    
    (2,055,000
    )
    
    
    (599,000
    )
    
    
    (1,456,000
    )
    
    
    (351,000
    )
    
    
    (246,000
    )
    
    
    (105,000
    )Money market accounts
    
    
    (167,000
    )
    
    
    59,000
    
    
    
    (226,000
    )
    
    
    34,000
    
    
    
    43,000
    
    
    
    (9,000
    )Time deposits
    
    
    (13,632,000
    )
    
    
    (2,673,000
    )
    
    
    (10,959,000
    )
    
    
    11,805,000
    
    
    
    4,644,000
    
    
    
    7,161,000Short term borrowings
    
    
    (1,472,000
    )
    
    
    144,000
    
    
    
    (1,616,000
    )
    
    
    626,000
    
    
    
    652,000
    
    
    
    (26,000
    )Federal Home Loan Bank
advances
    
    
    4,454,000
    
    
    
    5,927,000
    
    
    
    (1,473,000
    )
    
    
    707,000
    
    
    
    (137,000
    )
    
    
    844,000Long term borrowings
    
    
    (334,000
    )
    
    
    655,000
    
    
    
    (989,000
    )
    
    
    152,000
    
    
    
    53,000
    
    
    
    99,000Net change in interest
expense
    
    
    (13,761,000
    )
    
    
    3,651,000
    
    
    
    (17,412,000
    )
    
    
    12,951,000
    
    
    
    5,027,000
    
    
    
    7,924,000Net change in tax-equivalent
net interest income
    
    $
    9,328,000
    
    
    $
    1,861,000
    
    
    $
    (11,189,000
    )
    
    $
    (6,021,000
    )
    
    $
    3,686,000
    
    
    $
    (9,707,000
    )
     F-18




---



##### 



Provision for Loan and Lease Losses
    F-19




---



##### 



Noninterest Income
  Noninterest Expense
  Federal Income Tax Expense
  Accounting for Income Taxes
 F-20




---



##### 



RESULTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 Summary
   2007
    
    2006Return on average assets
    
    
    0.43
    %
    
    
    1.01
    %Return on average shareholders equity
    
    
    5.10
    
    
    
    12.19Dividend payout ratio
    
    
    52.16
    
    
    
    20.34Average shareholders equity to average assets
    
    
    8.44
    
    
    
    8.31
 Net Interest Income
    F-21




---



##### 



F-22




---



##### 



Provision for Loan and Lease Losses
   Noninterest Income
  Noninterest Expense
  Federal Income Tax Expense
  CAPITAL RESOURCES
  F-23




---



##### 



LIQUIDITY
     F-24




---



##### 



One Year
    
    One to
    
    Three to
    
    Over Fiveor Less
    
    Three Years
    
    Five Years
    
    Years
    
    TotalDeposits without a stated maturity
    
    $
    235,789,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    235,789,000Certificates of deposits
    
    
    1,179,405,000
    
    
    
    167,415,000
    
    
    
    16,966,000
    
    
    
    0
    
    
    
    1,363,786,000Short term borrowings
    
    
    94,413,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    94,413,000Federal Home Loan Bank advances
    
    
    70,000,000
    
    
    
    150,000,000
    
    
    
    50,000,000
    
    
    
    0
    
    
    
    270,000,000Subordinated debentures
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    0
    
    
    
    15,000,000
    
    
    
    0
    
    
    
    4,528,000
    
    
    
    19,528,000Operating leases
    
    
    329,000
    
    
    
    432,000
    
    
    
    168,000
    
    
    
    0
    
    
    
    929,000
   December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Commercial unused lines of credit
    
    $
    323,785,000
    
    
    $
    377,493,000
    
    
    $
    345,195,000Unused lines of credit secured by
1-4 family residential
properties
    
    
    30,658,000
    
    
    
    33,083,000
    
    
    
    29,314,000Credit card unused lines of credit
    
    
    9,413,000
    
    
    
    9,035,000
    
    
    
    8,510,000Other consumer unused lines of credit
    
    
    4,881,000
    
    
    
    6,910,000
    
    
    
    7,197,000Commitments to make loans
    
    
    10,959,000
    
    
    
    66,196,000
    
    
    
    60,850,000Standby letters of credit
    
    
    51,439,000
    
    
    
    81,292,000
    
    
    
    73,241,000Total
    
    $
    431,135,000
    
    
    $
    574,009,000
    
    
    $
    524,307,000
 F-25




---



##### 



MARKET RISK ANALYSIS
    F-26




---



##### 



Within
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Commercial loans (1)
    
    $
    731,445
    
    
    $
    212,433
    
    
    $
    702,801
    
    
    $
    61,629
    
    
    $
    1,708,308Leases
    
    
    23
    
    
    
    120
    
    
    
    1,842
    
    
    
    0
    
    
    
    1,985Residential real estate loans
    
    
    52,208
    
    
    
    16,871
    
    
    
    57,214
    
    
    
    14,483
    
    
    
    140,776Consumer loans
    
    
    2,350
    
    
    
    97
    
    
    
    2,808
    
    
    
    591
    
    
    
    5,846Securities (2)
    
    
    38,942
    
    
    
    1,884
    
    
    
    43,153
    
    
    
    158,808
    
    
    
    242,787Federal funds sold
    
    
    8,950
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    8,950Short term investments
    
    
    100
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    100Allowance for loan and lease losses
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (27,108
    )Other assets
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    126,366Total assets
    
    
    834,018
    
    
    
    231,405
    
    
    
    807,818
    
    
    
    235,511
    
    
    
    2,208,010Liabilities:Interest-bearing checking
    
    
    50,248
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    50,248Savings
    
    
    49,943
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    49,943Money market accounts
    
    
    24,886
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    24,886Time deposits under $100,000
    
    
    59,325
    
    
    
    82,272
    
    
    
    37,342
    
    
    
    0
    
    
    
    178,939Time deposits $100,000 and over
    
    
    377,341
    
    
    
    660,467
    
    
    
    147,039
    
    
    
    0
    
    
    
    1,184,847Short term borrowings
    
    
    94,413
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    94,413Federal Home Loan Bank advances
    
    
    15,000
    
    
    
    55,000
    
    
    
    200,000
    
    
    
    0
    
    
    
    270,000Long term borrowings
    
    
    37,518
    
    
    
    0
    
    
    
    15,000
    
    
    
    0
    
    
    
    52,518Noninterest-bearing checking
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    110,712Other liabilities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    17,132Total liabilities
    
    
    708,674
    
    
    
    797,739
    
    
    
    399,381
    
    
    
    0
    
    
    
    2,033,638Shareholders equity
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    174,372Total sources of funds
    
    
    708,674
    
    
    
    797,739
    
    
    
    399,381
    
    
    
    0
    
    
    
    2,208,010Net asset (liability) GAP
    
    $
    125,344
    
    
    $
    (566,334
    )
    
    $
    408,437
    
    
    $
    235,511Cumulative GAP
    
    $
    125,344
    
    
    $
    (440,990
    )
    
    $
    (32,553
    )
    
    $
    202,958Percent of cumulative GAP to
total assets
    
    
    5.7
    %
    
    
    (20.0
    )%
    
    
    (1.5
    )%
    
    
    9.2
    %
 
 (1)
    
    Floating rate loans that are currently at interest rate ceilings or interest rate
floors are treated as fixed rate loans and are reflected using maturity date and not repricing
frequency.(2)
    
    Mortgage-backed securities are categorized by expected maturities based upon
prepayment trends as of December 31, 2008.  F-27




---



##### 



Dollar Change In
    
    Percent Change InInterest Rate Scenario
    
    Net Interest Income
    
    Net Interest IncomeInterest rates down 200 basis points
    
    $
    8,298,000
    
    
    
    17.2
    %Interest rates down 100 basis points
    
    
    7,935,000
    
    
    
    16.5No change in interest rates
    
    
    7,352,000
    
    
    
    15.3Interest rates up 100 basis points
    
    
    6,260,000
    
    
    
    13.0Interest rates up 200 basis points
    
    
    6,963,000
    
    
    
    14.4
   F-28




---



##### 



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




---



##### 



/s/ Crowe Horwath LLPCrowe Horwath LLP 
 F-30




---



##### 



Internal Control  Integrated Framework
      /s/ BDO Seidman, LLPBDO Seidman, LLP 
 F-31




---



##### 



Internal Control  Integrated Framework
  Mercantile Bank Corporation/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-32




---



##### 



2008
    
    
    2007ASSETSCash and due from banks
    
    $
    16,754,000
    
    
    $
    29,138,000Short-term investments
    
    
    100,000
    
    
    
    292,000Federal funds sold
    
    
    8,950,000
    
    
    
    0Total cash and cash equivalents
    
    
    25,804,000
    
    
    
    29,430,000Securities available for sale
    
    
    162,669,000
    
    
    
    136,673,000Securities held to maturity (fair value of $65,381,000 at
December 31, 2008 and $66,440,000 at December 31, 2007)
    
    
    64,437,000
    
    
    
    65,330,000Federal Home Loan Bank stock
    
    
    15,681,000
    
    
    
    9,733,000Loans and leases
    
    
    1,856,915,000
    
    
    
    1,799,880,000Allowance for loan and lease losses
    
    
    (27,108,000
    )
    
    
    (25,814,000
    )Loans and leases, net
    
    
    1,829,807,000
    
    
    
    1,774,066,000Premises and equipment, net
    
    
    32,334,000
    
    
    
    34,351,000Bank owned life insurance policies
    
    
    42,462,000
    
    
    
    39,118,000Accrued interest receivable
    
    
    8,513,000
    
    
    
    9,957,000Other assets
    
    
    26,303,000
    
    
    
    22,745,000Total assets
    
    $
    2,208,010,000
    
    
    $
    2,121,403,000LIABILITIES AND SHAREHOLDERS EQUITYDepositsNoninterest-bearing
    
    $
    110,712,000
    
    
    $
    133,056,000Interest-bearing
    
    
    1,488,863,000
    
    
    
    1,458,125,000Total
    
    
    1,599,575,000
    
    
    
    1,591,181,000Securities sold under agreements to repurchase
    
    
    94,413,000
    
    
    
    97,465,000Federal funds purchased
    
    
    0
    
    
    
    13,800,000Federal Home Loan Bank advances
    
    
    270,000,000
    
    
    
    180,000,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Other borrowed money
    
    
    19,528,000
    
    
    
    4,013,000Accrued interest and other liabilities
    
    
    17,132,000
    
    
    
    23,799,000Total liabilities
    
    
    2,033,638,000
    
    
    
    1,943,248,000Shareholders equityPreferred stock, no par value; 1,000,000 shares
authorized, none issued
    
    
    0
    
    
    
    0Common stock, no par value; 20,000,000 shares
authorized; 8,593,304 and 8,527,197 shares issued
and outstanding at December 31, 2008 and 2007
    
    
    172,353,000
    
    
    
    172,938,000Retained earnings (deficit)
    
    
    (1,281,000
    )
    
    
    4,948,000Accumulated other comprehensive income
    
    
    3,300,000
    
    
    
    269,000Total shareholders equity
    
    
    174,372,000
    
    
    
    178,155,000Total liabilities and shareholders equity
    
    $
    2,208,010,000
    
    
    $
    2,121,403,000
  F-33




---



##### 



2008
    
    
    2007
    
    
    2006Interest incomeLoans and leases, including fees
    
    $
    110,013,000
    
    
    $
    133,685,000
    
    
    $
    127,470,000Securities, taxable
    
    
    7,888,000
    
    
    
    7,243,000
    
    
    
    6,557,000Securities, tax-exempt
    
    
    2,960,000
    
    
    
    2,813,000
    
    
    
    2,739,000Federal funds sold
    
    
    204,000
    
    
    
    420,000
    
    
    
    482,000Short-term investments
    
    
    7,000
    
    
    
    20,000
    
    
    
    12,000Total interest income
    
    
    121,072,000
    
    
    
    144,181,000
    
    
    
    137,260,000Interest expenseDeposits
    
    
    59,812,000
    
    
    
    76,221,000
    
    
    
    64,755,000Short-term borrowings
    
    
    2,021,000
    
    
    
    3,493,000
    
    
    
    2,867,000Federal Home Loan Bank advances
    
    
    10,554,000
    
    
    
    6,100,000
    
    
    
    5,393,000Long-term borrowings
    
    
    2,476,000
    
    
    
    2,810,000
    
    
    
    2,658,000Total interest expense
    
    
    74,863,000
    
    
    
    88,624,000
    
    
    
    75,673,000Net interest income
    
    
    46,209,000
    
    
    
    55,557,000
    
    
    
    61,587,000Provision for loan and lease losses
    
    
    21,200,000
    
    
    
    11,070,000
    
    
    
    5,775,000Net interest income after provision for loan and lease losses
    
    
    25,009,000
    
    
    
    44,487,000
    
    
    
    55,812,000Noninterest incomeService charges on accounts
    
    
    1,994,000
    
    
    
    1,610,000
    
    
    
    1,386,000Earnings on bank owned life insurance policies
    
    
    1,727,000
    
    
    
    1,252,000
    
    
    
    1,165,000Credit and debit card fees
    
    
    745,000
    
    
    
    668,000
    
    
    
    557,000Letter of credit fees
    
    
    687,000
    
    
    
    613,000
    
    
    
    443,000Mortgage banking activities
    
    
    662,000
    
    
    
    464,000
    
    
    
    553,000Net gain on sales of commercial loans
    
    
    0
    
    
    
    0
    
    
    
    29,000Other income
    
    
    1,467,000
    
    
    
    1,263,000
    
    
    
    1,128,000Total noninterest income
    
    
    7,282,000
    
    
    
    5,870,000
    
    
    
    5,261,000Noninterest expenseSalaries and benefits
    
    
    22,493,000
    
    
    
    22,876,000
    
    
    
    18,983,000Occupancy
    
    
    3,826,000
    
    
    
    3,300,000
    
    
    
    3,136,000Furniture and equipment rent, depreciation and maintenance
    
    
    1,980,000
    
    
    
    2,063,000
    
    
    
    2,050,000Nonperforming asset costs
    
    
    3,266,000
    
    
    
    1,099,000
    
    
    
    430,000Data processing
    
    
    2,394,000
    
    
    
    2,017,000
    
    
    
    1,657,000FDIC insurance
    
    
    1,890,000
    
    
    
    654,000
    
    
    
    184,000Advertising
    
    
    559,000
    
    
    
    585,000
    
    
    
    600,000Other expense
    
    
    5,718,000
    
    
    
    5,762,000
    
    
    
    5,222,000Total noninterest expenses
    
    
    42,126,000
    
    
    
    38,356,000
    
    
    
    32,262,000Income (loss) before federal income tax expense (benefit)
    
    
    (9,835,000
    )
    
    
    12,001,000
    
    
    
    28,811,000Federal income tax expense (benefit)
    
    
    (4,876,000
    )
    
    
    3,035,000
    
    
    
    8,964,000Net income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000Earnings (loss) per share:Basic
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.36Diluted
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.33
  F-34




---



##### 



Accumulated Other
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalances, January 1, 2006
    
    $
    148,533,000
    
    
    $
    8,000,000
    
    
    $
    (1,408,000
    )
    
    $
    155,125,000Payment of 5% stock dividend
    
    
    12,014,000
    
    
    
    (12,018,000
    )
    
    
    
    
    
    
    (4,000
    )Employee stock purchase plan, 2,912 shares
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    107,000Dividend reinvestment plan, 2,657 shares
    
    
    98,000
    
    
    
    
    
    
    
    
    
    
    
    98,000Stock option exercises, 64,971 shares
    
    
    814,000
    
    
    
    
    
    
    
    
    
    
    
    814,000Stock tendered for stock option
exercises, 15,685 shares
    
    
    (585,000
    )
    
    
    
    
    
    
    
    
    
    
    (585,000
    )Cash dividends ($0.48 per share)
    
    
    
    
    
    
    (4,035,000
    )
    
    
    
    
    
    
    (4,035,000
    )Stock-based compensation expense
    
    
    242,000
    
    
    
    
    
    
    
    
    
    
    
    242,000Comprehensive income:Net income
    
    
    
    
    
    
    19,847,000
    
    
    
    
    
    
    
    19,847,000Change in net unrealized loss on
securities available for sale, net of
reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    306,000
    
    
    
    306,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,153,000Balances, December 31, 2006
    
    
    161,223,000
    
    
    
    11,794,000
    
    
    
    (1,102,000
    )
    
    
    171,915,000Payment of 5% stock dividend
    
    
    11,131,000
    
    
    
    (11,135,000
    )
    
    
    
    
    
    
    (4,000
    )Employee stock purchase plan, 3,966 shares
    
    
    91,000
    
    
    
    
    
    
    
    
    
    
    
    91,000Dividend reinvestment plan, 3,137 shares
    
    
    76,000
    
    
    
    
    
    
    
    
    
    
    
    76,000Stock option exercises, 52,117 shares
    
    
    643,000
    
    
    
    
    
    
    
    
    
    
    
    643,000Stock tendered for stock option
exercises, 18,291 shares
    
    
    (587,000
    )
    
    
    
    
    
    
    
    
    
    
    (587,000
    )Cash dividends ($0.55 per share)
    
    
    
    
    
    
    (4,677,000
    )
    
    
    
    
    
    
    (4,677,000
    )Stock-based compensation expense
    
    
    361,000
    
    
    
    
    
    
    
    
    
    
    
    361,000Comprehensive income:Net income
    
    
    
    
    
    
    8,966,000
    
    
    
    
    
    
    
    8,966,000Change in net unrealized gain (loss) on
securities available for sale, net of
reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    1,371,000
    
    
    
    1,371,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,337,000Balances, December 31, 2007
    
    
    172,938,000
    
    
    
    4,948,000
    
    
    
    269,000
    
    
    
    178,155,000
  F-35




---



##### 



Accumulated Other
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Earnings (Deficit)
    
    
    Income (Loss)
    
    
    EquityBalances, December 31, 2007
    
    $
    172,938,000
    
    
    $
    4,948,000
    
    
    $
    269,000
    
    
    $
    178,155,000Employee stock purchase plan, 10,904 shares
    
    
    76,000
    
    
    
    
    
    
    
    
    
    
    
    76,000Dividend reinvestment plan, 4,340 shares
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    40,000Stock option exercises, 2,000 shares
    
    
    16,000
    
    
    
    
    
    
    
    
    
    
    
    16,000Stock tendered for stock option exercises,
1,123 shares
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Stock-based compensation expense
    
    
    654,000
    
    
    
    
    
    
    
    
    
    
    
    654,000Cash dividends ($0.31 per share)
    
    
    (1,355,000
    )
    
    
    (1,270,000
    )
    
    
    
    
    
    
    (2,625,000
    )Comprehensive income (loss):Net loss
    
    
    
    
    
    
    (4,959,000
    )
    
    
    
    
    
    
    (4,959,000
    )Change in net unrealized gain
on securities available for sale,
net of reclassifications and tax effect
    
    
    
    
    
    
    
    
    
    
    1,795,000
    
    
    
    1,795,000Change in net fair value of interest
rate swaps, net of reclassifications
and tax effect
    
    
    
    
    
    
    
    
    
    
    1,236,000
    
    
    
    1,236,000Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,928,000
    )Balances, December 31, 2008
    
    $
    172,353,000
    
    
    $
    (1,281,000
    )
    
    $
    3,300,000
    
    
    $
    174,372,000
  F-36




---



##### 



2008
    
    
    2007
    
    
    2006Cash flows from operating activitiesNet income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000Adjustments to reconcile net income (loss)
to net cash from operating activities:Depreciation and amortization
    
    
    2,762,000
    
    
    
    3,080,000
    
    
    
    2,887,000Provision for loan and lease losses
    
    
    21,200,000
    
    
    
    11,070,000
    
    
    
    5,775,000Deferred income tax benefit
    
    
    (1,558,000
    )
    
    
    (2,103,000
    )
    
    
    (474,000
    )Stock-based compensation expense
    
    
    654,000
    
    
    
    361,000
    
    
    
    242,000Net gain on sales of commercial loans
    
    
    0
    
    
    
    0
    
    
    
    (29,000
    )Proceeds from sales of mortgage loans held for sale
    
    
    44,095,000
    
    
    
    32,911,000
    
    
    
    18,133,000Origination of mortgage loans held for sale
    
    
    (42,810,000
    )
    
    
    (33,408,000
    )
    
    
    (18,766,000
    )Net gain on sales of mortgage loans
    
    
    (506,000
    )
    
    
    (432,000
    )
    
    
    (231,000
    )Loss on sale of foreclosed assets
    
    
    1,768,000
    
    
    
    157,000
    
    
    
    8,000Earnings on bank owned life insurance
    
    
    (1,727,000
    )
    
    
    (1,252,000
    )
    
    
    (1,165,000
    )Net change in:Accrued interest receivable
    
    
    1,444,000
    
    
    
    330,000
    
    
    
    (2,013,000
    )Other assets
    
    
    (61,000
    )
    
    
    (2,243,000
    )
    
    
    (1,658,000
    )Accrued interest and other liabilities
    
    
    (6,667,000
    )
    
    
    1,927,000
    
    
    
    5,277,000Net cash from operating activities
    
    
    13,635,000
    
    
    
    19,364,000
    
    
    
    27,833,000Cash flows from investing activitiesPurchases of:Securities available for sale
    
    
    (96,292,000
    )
    
    
    (15,406,000
    )
    
    
    (24,886,000
    )Securities held to maturity
    
    
    (978,000
    )
    
    
    (4,658,000
    )
    
    
    (4,567,000
    )Federal Home Loan Bank stock
    
    
    (5,948,000
    )
    
    
    (2,224,000
    )
    
    
    0Proceeds from:Maturities, calls and repayments of
securities available for sale
    
    
    73,571,000
    
    
    
    11,969,000
    
    
    
    7,423,000Maturities, calls and repayments of
securities held to maturity
    
    
    1,840,000
    
    
    
    3,221,000
    
    
    
    1,330,000Redemption of Federal Home Loan Bank stock
    
    
    0
    
    
    
    0
    
    
    
    378,000Loan and lease originations and payments, net
    
    
    (86,489,000
    )
    
    
    (66,681,000
    )
    
    
    (189,793,000
    )Purchases of premises and equipment, net
    
    
    (673,000
    )
    
    
    (3,513,000
    )
    
    
    (5,911,000
    )Proceeds from sale of foreclosed assets
    
    
    4,777,000
    
    
    
    1,476,000
    
    
    
    1,055,000Purchases of bank owned life insurance policies
    
    
    (1,617,000
    )
    
    
    (7,008,000
    )
    
    
    (1,621,000
    )Net cash for investing activities
    
    
    (111,809,000
    )
    
    
    (82,824,000
    )
    
    
    (216,592,000
    )Cash flows from financing activitiesNet increase (decrease) in time deposits
    
    
    42,774,000
    
    
    
    (50,972,000
    )
    
    
    229,843,000Net increase (decrease) in all other deposits
    
    
    (34,380,000
    )
    
    
    (4,750,000
    )
    
    
    (2,292,000
    )Net increase (decrease) in securities sold under
agreements to repurchase
    
    
    (3,052,000
    )
    
    
    11,993,000
    
    
    
    13,271,000Net increase (decrease) in federal funds purchased
    
    
    (13,800,000
    )
    
    
    4,000,000
    
    
    
    200,000Proceeds from Federal Home Loan Bank advances
    
    
    266,500,000
    
    
    
    175,000,000
    
    
    
    80,000,000Pay-off of Federal Home Loan Bank advances
    
    
    (176,500,000
    )
    
    
    (90,000,000
    )
    
    
    (115,000,000
    )Increase in structured repurchase agreements
    
    
    15,000,000
    
    
    
    0
    
    
    
    0Increase in other borrowed money
    
    
    515,000
    
    
    
    697,000
    
    
    
    969,000Cash paid in lieu of fractional shares on stock dividend
    
    
    0
    
    
    
    (4,000
    )
    
    
    (4,000
    )Employee stock purchase plan
    
    
    76,000
    
    
    
    91,000
    
    
    
    107,000Dividend reinvestment plan
    
    
    40,000
    
    
    
    76,000
    
    
    
    98,000Stock option exercises, net
    
    
    0
    
    
    
    56,000
    
    
    
    229,000Cash dividends
    
    
    (2,625,000
    )
    
    
    (4,677,000
    )
    
    
    (4,035,000
    )Net cash from financing activities
    
    
    94,548,000
    
    
    
    41,510,000
    
    
    
    203,386,000
  F-37




---



##### 



2008
    
    
    2007
    
    
    2006Net change in cash and cash equivalents
    
    
    (3,626,000
    )
    
    
    (21,950,000
    )
    
    
    14,627,000Cash and cash equivalents at beginning of period
    
    
    29,430,000
    
    
    
    51,380,000
    
    
    
    36,753,000Cash and cash equivalents at end of period
    
    $
    25,804,000
    
    
    $
    29,430,000
    
    
    $
    51,380,000Supplemental disclosures of cash flow informationCash paid during the year for:Interest
    
    $
    80,748,000
    
    
    $
    87,707,000
    
    
    $
    67,925,000Federal income taxes
    
    
    0
    
    
    
    5,730,000
    
    
    
    10,875,000Transfers from loans and leases to foreclosed assets
    
    
    9,062,000
    
    
    
    6,898,000
    
    
    
    2,129,000
  F-38




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Consolidation of Variable Interest Entities
 Nature of Operations
      F-39




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
 Cash Flow Reporting
 Securities
   Loans and Leases
    F-40




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loans Held for Sale
 Allowance for Loan and Lease Losses
  Transfers of Financial Assets
 Premises and Equipment
 Long-lived Assets
  F-41




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Foreclosed Assets:
 Bank Owned Life Insurance:
 Repurchase Agreements
 Financial Instruments and Loan Commitments
 Stock-Based Compensation: Share-Based Payment,
 Income Taxes
 Fair Values of Financial Instruments
 Earnings Per Share
 Stock Dividend
  F-42




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Comprehensive Income
 Derivatives
   Contingencies:
 Reclassifications
 Operating Segment Disclosures about Segments of an Enterprise and Related Information
 Adoption of New Accounting Standards Business Combinations
  F-43




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Disclosures About Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
 The Hierarchy of Generally Accepted Accounting
Principles
  F-44




---



##### 



NOTE 2  SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2008U.S. Government agency
debt obligations
    
    $
    61,511,000
    
    
    $
    1,264,000
    
    
    $
    (393,000
    )
    
    $
    62,382,000Mortgage-backed securities
    
    
    74,702,000
    
    
    
    2,324,000
    
    
    
    0
    
    
    
    77,026,000Michigan Strategic Fund bonds
    
    
    22,105,000
    
    
    
    0
    
    
    
    0
    
    
    
    22,105,000Mutual fund
    
    
    1,175,000
    
    
    
    0
    
    
    
    (19,000
    )
    
    
    1,156,000$
    159,493,000
    
    
    $
    3,588,000
    
    
    $
    (412,000
    )
    
    $
    162,669,0002007U.S. Government agency
debt obligations
    
    $
    80,129,000
    
    
    $
    860,000
    
    
    $
    (44,000
    )
    
    $
    80,945,000Mortgage-backed securities
    
    
    55,003,000
    
    
    
    193,000
    
    
    
    (577,000
    )
    
    
    54,619,000Mutual fund
    
    
    1,127,000
    
    
    
    0
    
    
    
    (18,000
    )
    
    
    1,109,000$
    136,259,000
    
    
    $
    1,053,000
    
    
    $
    (639,000
    )
    
    $
    136,673,000
  Gross
    
    
    GrossCarrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAmount
    
    
    Gains
    
    
    Losses
    
    
    Value2008Municipal general obligation bonds
    
    $
    56,893,000
    
    
    $
    1,133,000
    
    
    $
    (351,000
    )
    
    $
    57,675,000Municipal revenue bonds
    
    
    7,544,000
    
    
    
    175,000
    
    
    
    (13,000
    )
    
    
    7,706,000$
    64,437,000
    
    
    $
    1,308,000
    
    
    $
    (364,000
    )
    
    $
    65,381,0002007Municipal general obligation bonds
    
    $
    57,668,000
    
    
    $
    1,084,000
    
    
    $
    (164,000
    )
    
    $
    58,588,000Municipal revenue bonds
    
    
    7,662,000
    
    
    
    198,000
    
    
    
    (8,000
    )
    
    
    7,852,000$
    65,330,000
    
    
    $
    1,282,000
    
    
    $
    (172,000
    )
    
    $
    66,440,000
  F-45




---



##### 



NOTE 2  SECURITIES
  Less than 12 Months
    
    
    12 Months or More
    
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2008U.S. Government agency
debt obligations
    
    $
    20,588,000
    
    
    $
    (387,000
    )
    
    $
    1,994,000
    
    
    $
    (6,000
    )
    
    $
    22,582,000
    
    
    $
    (393,000
    )Mortgage-backed securities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Michigan Strategic Fund bonds
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Mutual fund
    
    
    0
    
    
    
    0
    
    
    
    1,156,000
    
    
    
    (19,000
    )
    
    
    1,156,000
    
    
    
    (19,000
    )Municipal general
obligation bonds
    
    
    3,547,000
    
    
    
    (76,000
    )
    
    
    10,852,000
    
    
    
    (275,000
    )
    
    
    14,399,000
    
    
    
    (351,000
    )Municipal revenue bonds
    
    
    307,000
    
    
    
    (1,000
    )
    
    
    794,000
    
    
    
    (12,000
    )
    
    
    1,101,000
    
    
    
    (13,000
    )$
    24,442,000
    
    
    $
    (464,000
    )
    
    $
    14,796,000
    
    
    $
    (312,000
    )
    
    $
    39,238,000
    
    
    $
    (776,000
    )
 2007U.S. Government agency
debt obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    7,953,000
    
    
    $
    (44,000
    )
    
    $
    7,953,000
    
    
    $
    (44,000
    )Mortgage-backed securities
    
    
    1,241,000
    
    
    
    (3,000
    )
    
    
    35,277,000
    
    
    
    (574,000
    )
    
    
    36,518,000
    
    
    
    (577,000
    )Mutual fund
    
    
    0
    
    
    
    0
    
    
    
    1,109,000
    
    
    
    (18,000
    )
    
    
    1,109,000
    
    
    
    (18,000
    )Municipal general
obligation bonds
    
    
    2,899,000
    
    
    
    (29,000
    )
    
    
    11,001,000
    
    
    
    (135,000
    )
    
    
    13,900,000
    
    
    
    (164,000
    )Municipal revenue bonds
    
    
    255,000
    
    
    
    (1,000
    )
    
    
    1,029,000
    
    
    
    (7,000
    )
    
    
    1,284,000
    
    
    
    (8,000
    )$
    4,395,000
    
    
    $
    (33,000
    )
    
    $
    56,369,000
    
    
    $
    (778,000
    )
    
    $
    60,764,000
    
    
    $
    (811,000
    )
    F-46




---



##### 



NOTE 2  SECURITIES
   Held-to-Maturity
    
    
    Available-for-SaleWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Carrying
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    FairYield
    
    
    Amount
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    ValueDue in one year or less
    
    
    6.64
    %
    
    $
    1,884,000
    
    
    $
    1,914,000
    
    
    NA
    
    $
    0
    
    
    $
    0Due from one to five years
    
    
    6.73
    
    
    
    10,457,000
    
    
    
    10,891,000
    
    
    
    4.70
    %
    
    
    11,934,000
    
    
    
    12,235,000Due from five to ten years
    
    
    6.57
    
    
    
    13,496,000
    
    
    
    13,948,000
    
    
    
    5.29
    
    
    
    16,637,000
    
    
    
    17,065,000Due after ten years
    
    
    6.35
    
    
    
    38,600,000
    
    
    
    38,628,000
    
    
    
    5.33
    
    
    
    32,940,000
    
    
    
    33,082,000Mortgage-backed securities
    
    NA
    
    
    0
    
    
    
    0
    
    
    
    5.16
    
    
    
    74,702,000
    
    
    
    77,026,000Michigan Strategic Fund bonds
    
    NA
    
    
    0
    
    
    
    0
    
    
    
    2.99
    
    
    
    22,105,000
    
    
    
    22,105,000Mutual fund
    
    NA
    
    
    0
    
    
    
    0
    
    
    
    4.00
    
    
    
    1,175,000
    
    
    
    1,156,0006.47
    %
    
    $
    64,437,000
    
    
    $
    65,381,000
    
    
    
    4.87
    %
    
    $
    159,493,000
    
    
    $
    162,669,000
     F-47




---



##### 



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  PercentDecember 31, 2008
    
    
    December 31, 2007
    
    
    IncreaseBalance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Real Estate:Construction and land
development
    
    $
    263,392,000
    
    
    
    14.1
    %
    
    $
    263,868,000
    
    
    
    14.7
    %
    
    
    (0.2
    )%Secured by 1  4
family properties
    
    
    140,776,000
    
    
    
    7.6
    
    
    
    135,517,000
    
    
    
    7.5
    
    
    
    3.9Secured by multi-family properties
    
    
    47,365,000
    
    
    
    2.6
    
    
    
    51,951,000
    
    
    
    2.9
    
    
    
    (8.8
    )Secured by
nonresidential properties
    
    
    881,350,000
    
    
    
    47.5
    
    
    
    855,872,000
    
    
    
    47.6
    
    
    
    3.0Commercial
    
    
    516,201,000
    
    
    
    27.8
    
    
    
    484,645,000
    
    
    
    26.9
    
    
    
    6.5Leases
    
    
    1,985,000
    
    
    
    0.1
    
    
    
    2,865,000
    
    
    
    0.1
    
    
    
    (30.7
    )Consumer
    
    
    5,846,000
    
    
    
    0.3
    
    
    
    5,162,000
    
    
    
    0.3
    
    
    
    13.3$
    1,856,915,000
    
    
    
    100.0
    %
    
    $
    1,799,880,000
    
    
    
    100.0
    %
    
    
    3.2
    %
  2008
    
    
    2007
    
    
    2006Beginning balance
    
    $
    25,814,000
    
    
    $
    21,411,000
    
    
    $
    20,527,000Provision for loan and lease losses
    
    
    21,200,000
    
    
    
    11,070,000
    
    
    
    5,775,000Charge-offs
    
    
    (20,594,000
    )
    
    
    (7,274,000
    )
    
    
    (5,389,000
    )Recoveries
    
    
    688,000
    
    
    
    607,000
    
    
    
    498,000Ending balance
    
    $
    27,108,000
    
    
    $
    25,814,000
    
    
    $
    21,411,000
 2008
    
    
    2007Impaired loans and leases were as follows:Year-end loans with no allocated allowance for loan and lease losses
    
    $
    22,557,000
    
    
    $
    10,842,000Year-end loans with allocated allowance for loan and lease losses
    
    
    22,222,000
    
    
    
    14,052,000$
    44,779,000
    
    
    $
    24,894,000Amount of the allowance for loan and lease losses allocated
    
    $
    3,980,000
    
    
    $
    3,237,000
   F-48




---



##### 



NOTE 3  LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
 2008
    
    
    2007Nonperforming loans and leases were as follows:Loans and leases past due 90 days or more still accruing interest
    
    $
    1,358,000
    
    
    $
    977,000Nonaccrual loans and leases
    
    
    47,945,000
    
    
    
    28,832,000$
    49,303,000
    
    
    $
    29,809,000
  2008
    
    2007Percentage of
    
    
    
    
    
    Percentage ofBalance
    
    Loan Portfolio
    
    Balance
    
    Loan PortfolioCommercial real estate loans to
lessors of non-residential
buildings
    
    $
    489,580,000
    
    
    
    26.4
    %
    
    $
    483,210,000
    
    
    
    26.8
    %
 NOTE 4  PREMISES AND EQUIPMENT, NET
  2008
    
    
    2007Land and improvements
    
    $
    8,538,000
    
    
    $
    8,534,000Buildings and leasehold improvements
    
    
    24,888,000
    
    
    
    24,559,000Furniture and equipment
    
    
    12,484,000
    
    
    
    12,164,00045,910,000
    
    
    
    45,257,000Less: accumulated depreciation
    
    
    13,576,000
    
    
    
    10,906,000$
    32,334,000
    
    
    $
    34,351,000
   2009
    
    $
    329,0002010
    
    
    254,0002011
    
    
    178,0002012
    
    
    168,0002013
    
    
    0Total
    
    $
    929,000
  F-49




---



##### 



NOTE 5  DEPOSITS
  PercentDecember 31, 2008
    
    December 31, 2007
    
    IncreaseBalance
    
    
    %
    
    
    Balance
    
    
    %
    
    
    (Decrease)Noninterest-bearing
demand
    
    $
    110,712,000
    
    
    
    6.9
    %
    
    $
    133,056,000
    
    
    
    8.4
    %
    
    
    (16.8
    )%Interest-bearing
checking
    
    
    50,248,000
    
    
    
    3.1
    
    
    
    44,491,000
    
    
    
    2.8
    
    
    
    12.9Money market
    
    
    24,886,000
    
    
    
    1.6
    
    
    
    11,872,000
    
    
    
    0.7
    
    
    
    109.6Savings
    
    
    49,943,000
    
    
    
    3.1
    
    
    
    80,750,000
    
    
    
    5.1
    
    
    
    (38.2
    )Time, under $100,000
    
    
    49,991,000
    
    
    
    3.1
    
    
    
    52,675,000
    
    
    
    3.3
    
    
    
    (5.1
    )Time, $100,000 and
over
    
    
    184,573,000
    
    
    
    11.6
    
    
    
    343,296,000
    
    
    
    21.6
    
    
    
    (46.2
    )470,353,000
    
    
    
    29.4
    
    
    
    666,140,000
    
    
    
    41.9
    
    
    
    (29.4
    )Out-of-area time,
under $100,000
    
    
    128,948,000
    
    
    
    8.1
    
    
    
    100,703,000
    
    
    
    6.3
    
    
    
    28.0Out-of-area time,
$100,000 and over
    
    
    1,000,274,000
    
    
    
    62.5
    
    
    
    824,338,000
    
    
    
    51.8
    
    
    
    21.31,129,222,000
    
    
    
    70.6
    
    
    
    925,041,000
    
    
    
    58.1
    
    
    
    22.1$
    1,599,575,000
    
    
    
    100.0
    %
    
    $
    1,591,181,000
    
    
    
    100.0
    %
    
    
    0.5
    %
   2008
    
    
    2007In one year or less
    
    $
    1,179,405,000
    
    
    $
    1,030,178,000In one to two years
    
    
    140,299,000
    
    
    
    227,492,000In two to three years
    
    
    27,116,000
    
    
    
    32,231,000In three to four years
    
    
    10,232,000
    
    
    
    21,777,000In four to five years
    
    
    6,734,000
    
    
    
    9,334,000$
    1,363,786,000
    
    
    $
    1,321,012,000
  2008
    
    
    2007Up to three months
    
    $
    377,341,000
    
    
    $
    356,661,000Three months to six months
    
    
    281,568,000
    
    
    
    247,322,000Six months to twelve months
    
    
    378,899,000
    
    
    
    320,297,000Over twelve months
    
    
    147,039,000
    
    
    
    243,354,000$
    1,184,847,000
    
    
    $
    1,167,634,000
  F-50




---



##### 



NOTE 6  SHORT-TERM BORROWINGS
  2008
    
    2007Outstanding balance at year-end
    
    $
    94,413,000
    
    
    $
    97,465,000Weighted average interest rate at year-end
    
    
    1.96
    %
    
    
    2.94
    %Average daily balance during the year
    
    
    93,149,000
    
    
    
    88,685,000Weighted average interest rate during the year
    
    
    2.04
    %
    
    
    3.67
    %Maximum month-end balance during the year
    
    
    105,986,000
    
    
    
    102,881,000
  NOTE 7  FEDERAL HOME LOAN BANK ADVANCES
  2008
    
    
    2007Maturities January 2009 through December 2013, fixed
rates from
2.95% to 5.30%, averaging 3.79%
    
    $
    270,000,000
    
    
    $
    0Maturities January 2008 through January 2012, fixed rates from
4.01% to 5.34%, averaging 4.71%
    
    
    0
    
    
    
    180,000,000$
    270,000,000
    
    
    $
    180,000,000
   2009
    
    $
    70,000,0002010
    
    
    65,000,0002011
    
    
    85,000,0002012
    
    
    40,000,0002013
    
    
    10,000,000
  F-51




---



##### 



NOTE 8  FEDERAL INCOME TAXES
 
  2008
    
    
    2007
    
    
    2006Current expense (benefit)
    
    $
    (3,318,000
    )
    
    $
    5,138,000
    
    
    $
    9,438,000Deferred benefit
    
    
    (1,558,000
    )
    
    
    (2,103,000
    )
    
    
    (474,000
    )Tax expense (benefit)
    
    $
    (4,876,000
    )
    
    $
    3,035,000
    
    
    $
    8,964,000
  2008
    
    
    2007
    
    
    2006Statutory rates
    
    $
    (3,442,000
    )
    
    $
    4,200,000
    
    
    $
    10,084,000Increase (decrease) fromTax-exempt interest
    
    
    (818,000
    )
    
    
    (794,000
    )
    
    
    (795,000
    )Bank owned life insurance
    
    
    (605,000
    )
    
    
    (438,000
    )
    
    
    (408,000
    )Other
    
    
    (11,000
    )
    
    
    67,000
    
    
    
    83,000Tax (benefit) expense
    
    $
    (4,876,000
    )
    
    $
    3,035,000
    
    
    $
    8,964,000
  2008
    
    
    2007Deferred income tax assetsAllowance for loan and lease losses
    
    $
    9,488,000
    
    
    $
    9,035,000Deferred loan fees
    
    
    263,000
    
    
    
    111,000Deferred compensation
    
    
    1,584,000
    
    
    
    1,404,000Nonaccrual loan interest income
    
    
    440,000
    
    
    
    175,000Fair value write-downs on foreclosed properties
    
    
    303,000
    
    
    
    27,000Other
    
    
    727,000
    
    
    
    633,00012,805,000
    
    
    
    11,385,000Deferred income tax liabilitiesDepreciation
    
    
    907,000
    
    
    
    1,006,000Unrealized gain on securities
    
    
    1,112,000
    
    
    
    145,000Net fair value of interest rate swaps
    
    
    666,000
    
    
    
    0Other
    
    
    674,000
    
    
    
    713,0003,359,000
    
    
    
    1,864,000Net deferred income tax asset
    
    $
    9,446,000
    
    
    $
    9,521,000
 Accounting for Income Taxes
  F-52




---



##### 



NOTE 8  FEDERAL INCOME TAXES
 Accounting for Uncertainty in
Income Taxes
 NOTE 9  STOCK-BASED COMPENSATION
     F-53




---



##### 



NOTE 9  STOCK-BASED COMPENSATION
  2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested at
beginning of year
    
    
    63,024
    
    
    $
    23.69
    
    
    
    21,159
    
    
    $
    37.94
    
    
    
    0
    
    
    $
    NAGranted
    
    
    56,710
    
    
    
    6.21
    
    
    
    44,450
    
    
    
    17.74
    
    
    
    21,159
    
    
    
    37.94Vested
    
    
    0
    
    
    NA
    
    
    
    0
    
    
    NA
    
    
    
    0
    
    
    NAForfeited
    
    
    (6,724
    )
    
    
    24.83
    
    
    
    (2,585
    )
    
    
    37.94
    
    
    
    0
    
    
    NANonvested at
end of year
    
    
    113,010
    
    
    $
    14.85
    
    
    
    63,024
    
    
    $
    23.69
    
    
    
    21,159
    
    
    $
    37.94
  2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
beginning of year
    
    
    271,755
    
    
    $
    24.34
    
    
    
    288,962
    
    
    $
    24.07
    
    
    
    330,378
    
    
    $
    20.77Granted
    
    
    67,460
    
    
    
    6.21
    
    
    
    54,099
    
    
    
    17.74
    
    
    
    25,867
    
    
    
    37.94Exercised
    
    
    (2,000
    )
    
    
    8.22
    
    
    
    (52,117
    )
    
    
    12.33
    
    
    
    (64,971
    )
    
    
    12.52Forfeited or expired
    
    
    (11,781
    )
    
    
    29.48
    
    
    
    (19,189
    )
    
    
    34.38
    
    
    
    (2,312
    )
    
    
    31.95Outstanding at
end of year
    
    
    325,434
    
    
    $
    20.49
    
    
    
    271,755
    
    
    $
    24.34
    
    
    
    288,962
    
    
    $
    24.07Options exercisable
at year-end
    
    
    198,694
    
    
    $
    25.23
    
    
    
    181,544
    
    
    $
    23.68
    
    
    
    234,534
    
    
    $
    21.55
   2008
    
    2007
    
    2006Risk-free interest rate
    
    
    2.00
    %
    
    
    3.40
    %
    
    
    4.60
    %Expected option life
    
    5 Years
    
    5 Years
    
    5 YearsExpected stock price volatility
    
    
    44
    %
    
    
    26
    %
    
    
    26
    %Dividend yield
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
  F-54




---



##### 



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
    
    
    67,460
    
    
    6.9 Years
    
    $
    6.21
    
    
    
    0
    
    
    $
    NA$8.01 - $12.00
    
    
    21,157
    
    
    1.6 Years
    
    
    8.44
    
    
    
    21,157
    
    
    
    8.44$12.01 - $16.00
    
    
    27,736
    
    
    2.8 Years
    
    
    12.89
    
    
    
    27,736
    
    
    
    12.89$16.01 - $20.00
    
    
    76,242
    
    
    5.2 Years
    
    
    17.21
    
    
    
    25,263
    
    
    
    16.14$20.01 - $24.00
    
    
    7,632
    
    
    3.8 Years
    
    
    20.18
    
    
    
    7,632
    
    
    
    20.18$24.01 - $28.00
    
    
    25,428
    
    
    4.8 Years
    
    
    26.61
    
    
    
    25,428
    
    
    
    26.61$32.01 - $36.00
    
    
    72,987
    
    
    6.3 Years
    
    
    34.77
    
    
    
    72,987
    
    
    
    34.77$36.01 - $40.00
    
    
    19,856
    
    
    4.9 Years
    
    
    37.94
    
    
    
    18,491
    
    
    
    37.94$40.01 - $44.00
    
    
    6,936
    
    
    5.8 Years
    
    
    40.28
    
    
    
    0
    
    
    NAOutstanding at year end
    
    
    325,434
    
    
    5.3 Years
    
    $
    20.49
    
    
    
    198,694
    
    
    $
    25.23
   2008
    
    2007
    
    2006Minimum exercise price
    
    $
    6.21
    
    
    $
    8.22
    
    
    $
    7.09Maximum exercise price
    
    
    40.28
    
    
    
    40.28
    
    
    
    40.28Average remaining option term
    
    5.3 Years
    
    5.9 Years
    
    6.1 Years
  2008
    
    2007
    
    2006Aggregate intrinsic value of stock options exercised
    
    $
    13,000
    
    
    $
    1,019,000
    
    
    $
    1,616,000Cash received from stock option exercises
    
    
    0
    
    
    
    56,000
    
    
    
    229,000Tax benefit realized from stock option exercises
    
    
    0
    
    
    
    0
    
    
    
    0Weighted average per share fair value of stock
options granted
    
    
    2.32
    
    
    
    4.60
    
    
    
    11.44
    F-55




---



##### 



NOTE 10  RELATED PARTIES
  2008
    
    
    2007Beginning balance
    
    $
    14,719,000
    
    
    $
    8,797,000New loans
    
    
    1,777,000
    
    
    
    9,551,000Repayments
    
    
    (2,406,000
    )
    
    
    (3,629,000
    )Ending balance
    
    $
    14,090,000
    
    
    $
    14,719,000
  NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
     F-56




---



##### 



NOTE 11  COMMITMENTS AND OFF-BALANCE-SHEET RISK
  2008
    
    
    2007Commercial unused lines of credit
    
    $
    323,785,000
    
    
    $
    377,493,000Unused lines of credit secured by 1  4 family
residential properties
    
    
    30,658,000
    
    
    
    33,083,000Credit card unused lines of credit
    
    
    9,413,000
    
    
    
    9,035,000Other consumer unused lines of credit
    
    
    4,881,000
    
    
    
    6,910,000Commitments to make loans
    
    
    10,959,000
    
    
    
    66,196,000Standby letters of credit
    
    
    51,439,000
    
    
    
    81,292,000$
    431,135,000
    
    
    $
    574,009,000
    2008
    
    
    2007Contract
    
    
    Carrying
    
    
    Contract
    
    
    CarryingAmount
    
    
    Value
    
    
    Amount
    
    
    ValueStandby letters of credit
    
    $
    51,439,000
    
    
    $
    282,000
    
    
    $
    81,292,000
    
    
    $
    357,000
   F-57




---



##### 



NOTE 12  BENEFIT PLANS
     NOTE 13  HEDGING ACTIVITIES
    F-58




---



##### 



NOTE 13  HEDGING ACTIVITIES
   NOTE 14  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2008
    
    2007Carrying
    
    Fair
    
    Carrying
    
    FairValues
    
    Values
    
    Values
    
    ValuesFinancial assetsCash and cash equivalents
    
    $
    25,804,000
    
    
    $
    25,804,000
    
    
    $
    29,430,000
    
    
    $
    29,430,000Securities available for sale
    
    
    162,669,000
    
    
    
    162,669,000
    
    
    
    136,673,000
    
    
    
    136,673,000Securities held to maturity
    
    
    64,437,000
    
    
    
    65,381,000
    
    
    
    65,330,000
    
    
    
    66,440,000Federal Home Loan Bank stock
    
    
    15,681,000
    
    
    
    15,681,000
    
    
    
    9,733,000
    
    
    
    9,733,000Loans, net
    
    
    1,829,807,000
    
    
    
    1,872,141,000
    
    
    
    1,774,066,000
    
    
    
    1,777,883,000Bank owned life insurance policies
    
    
    42,462,000
    
    
    
    42,462,000
    
    
    
    39,118,000
    
    
    
    39,118,000Accrued interest receivable
    
    
    8,513,000
    
    
    
    8,513,000
    
    
    
    9,957,000
    
    
    
    9,957,000Financial liabilitiesDeposits
    
    
    1,599,575,000
    
    
    
    1,610,953,000
    
    
    
    1,591,181,000
    
    
    
    1,585,921,000Securities sold under agreements
to repurchase
    
    
    94,413,000
    
    
    
    94,413,000
    
    
    
    97,465,000
    
    
    
    97,465,000Federal funds purchased
    
    
    0
    
    
    
    0
    
    
    
    13,800,000
    
    
    
    13,800,000Federal Home Loan Bank advances
    
    
    270,000,000
    
    
    
    274,847,000
    
    
    
    180,000,000
    
    
    
    180,303,000Subordinated debentures
    
    
    32,990,000
    
    
    
    31,100,000
    
    
    
    32,990,000
    
    
    
    32,678,000Accrued interest payable
    
    
    15,245,000
    
    
    
    15,245,000
    
    
    
    21,130,000
    
    
    
    21,130,000
  F-59




---



##### 



NOTE 14  FAIR VALUES OF FINANCIAL INSTRUMENTS
   NOTE 15  FAIR VALUE MEASUREMENTS
    F-60




---



##### 



NOTE 15  FAIR VALUE MEASUREMENTS
     Securities available for sale.
 Securities held to maturity.
 Mortgage loans held for sale.
 Loans and leases.
 Derivatives.
  F-61




---



##### 



NOTE 15  FAIR VALUE MEASUREMENTS
 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)Securities available for sale
    
    $
    162,669,000
    
    
    $
    0
    
    
    $
    162,669,000
    
    
    $
    0Total
    
    $
    162,669,000
    
    
    $
    0
    
    
    $
    162,669,000
    
    
    $
    0
  Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  QuotedPrice inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalAssets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Impaired loans (1)
    
    $
    37,197,000
    
    
    $
    0
    
    
    $
    37,197,000
    
    
    $
    0
    
    
    $
    (16,710,000
    )Total
    
    $
    37,197,000
    
    
    $
    0
    
    
    $
    37,197,000
    
    
    $
    0
    
    
    $
    (16,710,000
    )
 
 (1)
    
    Represents carrying value and related write-downs and specific reserves for
which adjustments are based on the estimated value of the property. Nonfinancial Assets and Liabilities Subject to FSP FAS 157-2 Deferral Provisions
   F-62




---



##### 



NOTE 16  EARNINGS (LOSS) PER SHARE
  2008
    
    
    2007
    
    
    2006BasicNet income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000Weighted average common shares outstanding
    
    
    8,470,721
    
    
    
    8,453,483
    
    
    
    8,403,163Basic earnings (loss) per common share
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.36DilutedNet income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000Weighted average common shares outstanding for
basic earnings (loss) per common share
    
    
    8,470,721
    
    
    
    8,453,483
    
    
    
    8,403,163Add: Dilutive effects of share-based awards
    
    
    0
    
    
    
    44,255
    
    
    
    114,809Average shares and dilutive potential
common shares
    
    
    8,470,721
    
    
    
    8,497,738
    
    
    
    8,517,972Diluted earnings (loss) per common share
    
    $
    (0.59
    )
    
    $
    1.06
    
    
    $
    2.33
  NOTE 17  SUBORDINATED DEBENTURES
    F-63




---



##### 



NOTE 18  REGULATORY MATTERS
    Minimum Requiredto be WellMinimum Required
    
    Capitalized Underfor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2008Total capital (to risk
weighted assets)Consolidated
    
    $
    229,307
    
    
    
    10.9
    %
    
    $
    167,836
    
    
    
    8.0
    %
    
    $
    NA
    
    
    NABank
    
    
    226,034
    
    
    
    10.8
    
    
    
    167,480
    
    
    
    8.0
    
    
    
    209,350
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    203,072
    
    
    
    9.7
    
    
    
    83,918
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    199,853
    
    
    
    9.6
    
    
    
    83,740
    
    
    
    4.0
    
    
    
    125,610
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    203,072
    
    
    
    9.2
    
    
    
    88,577
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    199,853
    
    
    
    9.0
    
    
    
    88,413
    
    
    
    4.0
    
    
    
    110,516
    
    
    
    5.0
  F-64




---



##### 



NOTE 18  REGULATORY MATTERS
 Minimum Requiredto be WellMinimum Required
    
    Capitalized Underfor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action RegulationsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2007Total capital (to risk
weighted assets)Consolidated
    
    $
    235,700
    
    
    
    11.4
    %
    
    $
    165,562
    
    
    
    8.0
    %
    
    $
    NA
    
    
    NABank
    
    
    232,435
    
    
    
    11.3
    
    
    
    165,292
    
    
    
    8.0
    
    
    
    206,615
    
    
    
    10.0
    %Tier 1 capital (to risk
weighted assets)Consolidated
    
    
    209,886
    
    
    
    10.1
    
    
    
    82,781
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    206,621
    
    
    
    10.0
    
    
    
    82,646
    
    
    
    4.0
    
    
    
    123,969
    
    
    
    6.0Tier 1 capital (to average
assets)Consolidated
    
    
    209,886
    
    
    
    10.0
    
    
    
    84,169
    
    
    
    4.0
    
    
    NA
    
    
    NABank
    
    
    206,621
    
    
    
    9.8
    
    
    
    84,061
    
    
    
    4.0
    
    
    
    105,076
    
    
    
    5.0
    F-65




---



##### 



NOTE 19  OTHER COMPREHENSIVE INCOME
  2008
    
    
    2007
    
    
    2006Unrealized holding gains on
available-for-sale securities
    
    $
    2,761,000
    
    
    $
    2,110,000
    
    
    $
    470,000Change in net fair value of interest rate swaps
    
    
    2,876,000
    
    
    
    0
    
    
    
    0Reclassification adjustments for gains
later recognized in income
    
    
    (974,000
    )
    
    
    0
    
    
    
    0Net unrealized gains
    
    
    4,663,000
    
    
    
    2,110,000
    
    
    
    470,000Tax effect of unrealized holding gains
on available-for-sale securities and
unrealized gain on interest rate swaps
    
    
    (1,973,000
    )
    
    
    (739,000
    )
    
    
    (164,000
    )Tax effect of reclassification adjustments for
gains later recognized in income
    
    
    341,000
    
    
    
    0
    
    
    
    0Other comprehensive income
    
    $
    3,031,000
    
    
    $
    1,371,000
    
    
    $
    306,000
  NOTE 20  QUARTERLY FINANCIAL DATA (UNAUDITED)
 Interest
    
    
    Net Interest
    
    
    Net
    
    
    Earnings (Loss) per ShareIncome
    
    
    Income
    
    
    Income (Loss)
    
    
    Basic
    
    
    Diluted2008First 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
    
    
    
    0.042007First quarter
    
    $
    36,025,000
    
    
    $
    14,484,000
    
    
    $
    4,283,000
    
    
    $
    0.51
    
    
    $
    0.51Second quarter
    
    
    36,084,000
    
    
    
    13,948,000
    
    
    
    2,221,000
    
    
    
    0.26
    
    
    
    0.26Third quarter
    
    
    36,779,000
    
    
    
    14,051,000
    
    
    
    2,367,000
    
    
    
    0.28
    
    
    
    0.28Fourth quarter
    
    
    35,293,000
    
    
    
    13,074,000
    
    
    
    95,000
    
    
    
    0.01
    
    
    
    0.012006First quarter
    
    $
    31,099,000
    
    
    $
    15,099,000
    
    
    $
    4,929,000
    
    
    $
    0.59
    
    
    $
    0.58Second quarter
    
    
    33,746,000
    
    
    
    15,646,000
    
    
    
    5,111,000
    
    
    
    0.61
    
    
    
    0.60Third quarter
    
    
    35,675,000
    
    
    
    15,547,000
    
    
    
    5,202,000
    
    
    
    0.62
    
    
    
    0.61Fourth quarter
    
    
    36,740,000
    
    
    
    15,295,000
    
    
    
    4,605,000
    
    
    
    0.54
    
    
    
    0.54
  F-66




---



##### 



NOTE 21  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)  CONDENSED FINANCIAL STATEMENTS
   2008
    
    
    2007ASSETSCash and cash equivalents
    
    $
    407,000
    
    
    $
    2,137,000Investment in bank subsidiary
    
    
    203,153,000
    
    
    
    206,890,000Other assets
    
    
    4,396,000
    
    
    
    3,373,000Total assets
    
    $
    207,956,000
    
    
    $
    212,400,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilities
    
    $
    594,000
    
    
    $
    1,255,000Subordinated debentures
    
    
    32,990,000
    
    
    
    32,990,000Shareholders equity
    
    
    174,372,000
    
    
    
    178,155,000Total liabilities and shareholders equity
    
    $
    207,956,000
    
    
    $
    212,400,000
  2008
    
    
    2007
    
    
    2006IncomeDividends from subsidiaries
    
    $
    4,739,000
    
    
    $
    7,291,000
    
    
    $
    6,440,000Other
    
    
    0
    
    
    
    19,000
    
    
    
    73,000Total income
    
    
    4,739,000
    
    
    
    7,310,000
    
    
    
    6,513,000ExpensesInterest expense
    
    
    1,914,000
    
    
    
    2,512,000
    
    
    
    2,429,000Other operating expenses
    
    
    2,431,000
    
    
    
    2,835,000
    
    
    
    1,917,000Total expenses
    
    
    4,345,000
    
    
    
    5,347,000
    
    
    
    4,346,000Income before income tax benefit and equity in
undistributed net income (loss) of subsidiary
    
    
    394,000
    
    
    
    1,963,000
    
    
    
    2,167,000Federal income tax benefit
    
    
    (1,417,000
    )
    
    
    (1,783,000
    )
    
    
    (1,392,000
    )Equity in undistributed net income (loss) of subsidiary
    
    
    (6,770,000
    )
    
    
    5,220,000
    
    
    
    16,288,000Net income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000
 F-67




---



##### 



NOTE 21  MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)  CONDENSED FINANCIAL STATEMENTS
  2008
    
    
    2007
    
    
    2006Cash flows from operating activitiesNet income (loss)
    
    $
    (4,959,000
    )
    
    $
    8,966,000
    
    
    $
    19,847,000Adjustments to reconcile net income (loss) to net
cash from operating activities:Equity in undistributed (income) loss of subsidiary
    
    
    6,770,000
    
    
    
    (5,220,000
    )
    
    
    (16,288,000
    )Stock-based compensation expense
    
    
    654,000
    
    
    
    361,000
    
    
    
    242,000Change in other assets
    
    
    (1,023,000
    )
    
    
    (483,000
    )
    
    
    9,000Change in other liabilities
    
    
    (661,000
    )
    
    
    648,000
    
    
    
    73,000Net cash from operating activities
    
    
    779,000
    
    
    
    4,272,000
    
    
    
    3,883,000Cash flows from investing activitiesNet capital investment into subsidiaries
    
    
    0
    
    
    
    0
    
    
    
    0Net cash from investing activities
    
    
    0
    
    
    
    0
    
    
    
    0Cash flows from financing activitiesStock option exercises, net
    
    
    0
    
    
    
    56,000
    
    
    
    229,000Employee stock purchase plan
    
    
    76,000
    
    
    
    91,000
    
    
    
    107,000Dividend reinvestment plan
    
    
    40,000
    
    
    
    76,000
    
    
    
    98,000Cash dividends
    
    
    (2,625,000
    )
    
    
    (4,677,000
    )
    
    
    (4,035,000
    )Fractional shares paid
    
    
    0
    
    
    
    (4,000
    )
    
    
    (4,000
    )Net cash for financing activities
    
    
    (2,509,000
    )
    
    
    (4,458,000
    )
    
    
    (3,605,000
    )Net change in cash and cash equivalents
    
    
    (1,730,000
    )
    
    
    (186,000
    )
    
    
    278,000Cash and cash equivalents at beginning of period
    
    
    2,137,000
    
    
    
    2,323,000
    
    
    
    2,045,000Cash and cash equivalents at end of period
    
    $
    407,000
    
    
    $
    2,137,000
    
    
    $
    2,323,000
 F-68




---



##### 



SIGNATURES
  MERCANTILE BANK CORPORATION/s/ Michael H. PriceMichael H. PriceChairman of the Board, President and Chief
Executive Officer  /s/ Betty S. BurtonBetty S. Burton, Director/s/ David M. CassardDavid M. Cassard, Director/s/ Edward J. ClarkEdward J. Clark, Director/s/ Peter A. CordesPeter A. Cordes, Director/s/ Doyle A. HayesDoyle A. Hayes, Director/s/ David M. HechtDavid M. Hecht, Director/s/ Susan K. JonesSusan K. Jones, Director/s/ Lawrence W. LarsenLawrence W. Larsen, Director /s/ Calvin D. MurdockCalvin D. Murdock, Director/s/ Michael H. PriceMichael H. Price, Chairman of the Board, President
        and Chief Executive Officer (principal executive officer)/s/ Merle J. PrinsMerle J. Prins, Director/s/ Timothy O. SchadTimothy O. Schad, Director/s/ Dale J. VisserDale J. Visser, Director/s/ Donald Williams, Sr.Donald Williams, Sr., Director/s/ Charles E. ChristmasCharles E. Christmas, Senior Vice President,
        Chief Financial Officer and Treasurer (principal financial and accounting
        officer)




---



##### 



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,
20083.2
    
    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, 200710.10
    
    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
 1




---



##### 



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 Gerald R. Johnson,
Jr., is incorporated by reference to exhibit 10.21 of our Form
10-K for the year ended December 31, 2001 *10.15
    
    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 *10.16
    
    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 *10.17
    
    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 *10.18
    
    Amendment to Employment Agreement dated as of October 17,
2002, among the company, our bank and Gerald R. Johnson, Jr.,
is incorporated by reference to exhibit 10.21 of our Form 10-K
for the year ended December 31, 2002 *10.19
    
    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 *10.20
    
    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 *10.21
    
    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 *10.22
    
    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 *10.23
    
    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, 200410.24
    
    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,
2004
 2




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.25
    
    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, 200410.26
    
    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, 200410.27
    
    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 *10.28
    
    Second Amendment to Employment Agreement dated as of November
17, 2005, among the company, our bank and Gerald R. Johnson,
Jr. is incorporated by reference to exhibit 10.28 of our Form
10-K for the year ended December 31, 2005 *10.29
    
    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 *10.30
    
    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 *10.31
    
    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 *10.32
    
    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 *10.33
    
    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 *10.34
    
    Form of Second Amendment to the Mercantile Bank of Michigan
Executive Deferred Compensation Agreement date 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
*10.35
    
    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 *
 3




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.36
    
    Director Fee Summary *10.37
    
    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, 200510.38
    
    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 *10.39
    
    Amendment and Restatement of Stock Incentive Plan of 2006 dated
November 18, 2008 *10.40
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted in 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed November 22,
2006 *10.41
    
    Form of Notice of Grant of Incentive Stock Option and Stock
Option Agreement for incentive stock options granted after 2006
under our Stock Incentive Plan of 2006 is incorporated by
reference to exhibit 10.41 of our Form 10-K for the year ended
December 31, 2007 *10.42
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
in 2006 under our Stock Incentive Plan of 2006 is incorporated
by reference to exhibit 10.2 of our Form 8-K filed November 22,
2006 *10.43
    
    Form of Restricted Stock Award Agreement Notification of Award
and Terms and Conditions of Award for restricted stock granted
after 2006 under our Stock Incentive Plan of 2006 is
incorporated by reference to exhibit 10.43 of our Form 10-K for
the year ended December 31, 2007 *10.44
    
    Executive Officer Bonus Plan for 2007 is incorporated by
reference to exhibit 10.1 of our Form 8-K filed January 29,
2007 *10.45
    
    Retirement Agreement by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 8-K filed
May 25, 2007 *10.46
    
    Additional Release of Claims Pursuant to Retirement Agreement
Dated May 24, 2007 by and among Mercantile Bank Corporation,
Mercantile Bank of Michigan and Gerald R. Johnson, Jr. is
incorporated by reference to exhibit 10.1 of our Form 10-Q for
the quarter ended September 30, 2007 *10.47
    
    Mercantile Bank Corporation Employee Stock Purchase Plan of 200210.48
    
    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, 200721
    
    Subsidiaries of the company23.1
    
    Consent of BDO Seidman, LLP23.2
    
    Consent of Crowe Horwath LLP
 4




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION31
    
    Rule 13a-14(a) Certifications32.1
    
    Section 1350 Chief Executive Officer Certification32.2
    
    Section 1350 Chief Financial Officer Certification
 
 *
    
    Management contract or compensatory plan 5