11-K 1 k06051e11vk.txt ANNUAL REPORT ON FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 000-26719 MERCANTILE BANK OF MICHIGAN 401(K) PLAN MERCANTILE BANK CORPORATION 310 LEONARD STREET, NW GRAND RAPIDS, MICHIGAN 49504 (616) 406-3777 MERCANTILE BANK OF MICHIGAN 401(K) PLAN FINANCIAL STATEMENTS December 31, 2005 and 2004 MERCANTILE BANK OF MICHIGAN 401(k) PLAN Grand Rapids, Michigan FINANCIAL STATEMENTS December 31, 2005 and 2004 CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................... 1 FINANCIAL STATEMENTS STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS.......................... 2 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS................ 3 NOTES TO FINANCIAL STATEMENTS............................................ 4 SUPPLEMENTAL SCHEDULE SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)........... 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Plan Administrator of Mercantile Bank of Michigan 401(k) Plan Grand Rapids, Michigan We have audited the accompanying statements of net assets available for benefits of the Mercantile Bank of Michigan 401(k) Plan (formerly known as the Mercantile Bank of West Michigan 401(k) Plan) ("the Plan") as of December 31, 2005 and 2004, and the related statement of changes in net assets available for benefits for the year ended December 31, 2005. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2005 and 2004, and the changes in net assets available for benefits for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplemental information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic 2005 financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic 2005 financial statements as a whole. /s/ Crowe Chizek and Company LLC ---------------------------------------- Crowe Chizek and Company LLC South Bend, Indiana May 18, 2006 1. MERCANTILE BANK OF MICHIGAN 401(k) PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, 2005 and 2004
2005 2004 ----------- ---------- ASSETS Investments, at fair value (Note 4) Common stock $ 7,005,537 $5,899,167 Mutual funds 4,377,083 3,097,138 Common collective trust 193,824 -- Money market fund 1,010 56,316 Participant loans 76,883 66,677 ----------- ---------- 11,654,337 9,119,298 Cash/cash equivalents 26,836 45,443 ----------- ---------- Total assets 11,681,173 9,164,741 LIABILITIES Due to custodian for securities purchased 26,565 20,540 ----------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $11,654,608 $9,144,201 =========== ==========
See accompanying notes to financial statements 2. MERCANTILE BANK OF MICHIGAN 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Year ended December 31, 2005 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income Net appreciation in fair value of investments (Note 4) $ 15,388 Interest 4,062 Dividends - cash 70,724 Dividends - stock 369,076 ----------- Total income 459,250 Contributions Employer 553,924 Participants 942,507 Rollovers from other plans 712,795 ----------- Total contributions 2,209,226 ----------- Total additions 2,668,476 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Benefits paid to participants 157,480 Administrative expense 589 ----------- Total deductions 158,069 NET INCREASE 2,510,407 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 9,144,201 ----------- End of year $11,654,608 ===========
See accompanying notes to financial statements 3. MERCANTILE BANK OF MICHIGAN 401(k) PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 1 - DESCRIPTION OF PLAN The following description of the Mercantile Bank of Michigan 401(k) Plan (the Plan) is provided for general information purposes only. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. General: The Plan was established by the plan sponsor, Mercantile Bank of Michigan (the Bank), effective January 1, 1998. The Plan is a defined contribution plan which covers all employees who have completed one hour of service. The Plan has a contributory 401(k) portion based on elective contributions from participants in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions: Elective deferrals by participants under the 401(k) provisions are based on a percentage of their compensation as defined in the Plan agreement which are subject to certain limitations. Employees also may rollover account balances from other plans into their account. The Bank may, at the sole discretion of the Board of Directors, contribute to each participant's account a matching contribution which is a percentage of the participant's elective contribution for the year. For 2005, the Bank made matching contributions equal to 100% of the first 5% of the compensation deferred by each 401(k) participant subject to certain limitations as specified in the Plan agreement. Participant Accounts: Each participant's account is credited with the participant's contributions and an allocation of (a) the Bank's contributions and (b) Plan earnings. Allocations are based on participant earnings, contributions or account balances, as defined. The benefit to which a participant is entitled is the aggregate of the participant's deferrals and rollovers and employer matching contributions. Each participant directs the investment of his or her account to any of the investment options available under the Plan. Retirement, Death and Disability: A participant is entitled to 100% of his or her account balance upon retirement, death or disability while employed. Vesting: Participants are immediately vested in their elective and employer contributions plus actual earnings thereon. Payment of Benefits: A participant or his or her beneficiary receives a distribution of the participant's account balance in a lump sum. A participant may receive the portion of his or her account invested in Mercantile Bank Corporation in either common shares or cash. (Continued) 4. MERCANTILE BANK OF MICHIGAN 401(k) PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 1 - DESCRIPTION OF PLAN (Continued) Loan Provisions: The Plan provides that participants can borrow funds against their account balances up to 50% of their vested balance, or $50,000, whichever is less. Expenses: Substantially all administrative expenses are paid by the Plan sponsor. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting: The financial statements of the Plan are prepared under the accrual method of accounting in accordance with U.S. generally accepted accounting principles. Investment Valuation and Income Recognition: The Plan's investments are stated at fair value. Mutual fund shares and Mercantile Bank Corporation common stock are traded on national exchanges and are valued at the last sales price on the date of valuation. Investments in the common collective trust are valued at estimated fair value based upon the net asset value of the shares held by the Plan, as determined by the plan custodian. Participant loans are stated at cost which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures, and actual results may differ from these estimates. Risks and Uncertainties for Investments: The Plan has investments in mutual funds and stocks. These investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participants' individual account balances. Concentration of Credit Risk: At December 31, 2005 and 2004 approximately 60% and 65% of the Plan's assets were invested in Mercantile Bank Corporation common stock. Payment of Benefits: Benefits are recorded when paid. (Continued) 5. MERCANTILE BANK OF MICHIGAN 401(k) PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 3 - PLAN TERMINATION Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. NOTE 4 - INVESTMENTS The following presents investments that represent 5% or more of the Plan's net assets at quoted market prices.
2005 2004 ---------------------- ---------------------- Number of Fair Number of Fair Shares Value Shares Value --------- ---------- --------- ---------- MUTUAL FUNDS Mutual Beacon fund 71,654 $1,106,334 54,833 $ 870,193 COMMON STOCK Mercantile Bank Corporation common stock 181,962 $7,005,537 149,346 $5,899,167
During 2005, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $15,388 as follows: Mutual funds $ 313,363 Common collective trust 1,329 Common stock (299,304) --------- $ 15,388 =========
NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS Parties-in-interest are defined under Department of Labor (DOL) regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer, and certain others. Professional fees for the administration and audit of the Plan are paid by the Bank. The 181,962 and 149,346 shares of Mercantile Bank Corporation common stock held by the Plan as of December 31, 2005 and 2004 represent approximately 2.4% and 2.1% of the Corporation's outstanding shares as of December 31, 2005 and 2004. NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS (Continued) (Continued) 6. MERCANTILE BANK OF MICHIGAN 401(k) PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 Cash dividends of $70,724 were paid to the Plan by Mercantile Bank Corporation during 2005. A 5% stock dividend was declared and paid by Mercantile Bank Corporation during 2005. As a result of this stock dividend, Mercantile Bank Corporation issued 8,133 additional shares of Mercantile Bank Corporation common stock to the Plan. As of December 31, the Plan held the following party-in-interest investments (at fair value):
2005 2004 ---------- ---------- Mercantile Bank Corporation common stock; 181,962 and 149,346 shares in 2005 and 2004, respectively $7,005,537 $5,899,167 Participant loans 76,883 66,677
NOTE 6 - TAX STATUS The Internal Revenue Service has determined and informed the Bank by letter dated June 1, 2001, that the Plan and related trusts are designed in accordance with the applicable sections of the Internal Revenue Code (IRC) for tax exempt status. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the plan is designed and is currently being administered in accordance with applicable provisions of the IRC. NOTE 7 - TERMINATED PARTICIPANTS Included in net assets available for benefits are amounts allocated to individuals who have elected to withdraw from the Plan, but who have not yet been paid. Plan assets allocated to these participants were $0 and $10,038 at December 31, 2005 and 2004, respectively. NOTE 8 - CHANGE IN TRUSTEES/PLAN AMENDMENT On August 1, 2005 the Plan's assets were transferred to Charles Schwab Trust Company. The Plan was also amended to implement daily valuation of participant accounts which will be administered by a third party administrator. Also effective August 1, 2005 the name of the Plan was amended to the Mercantile Bank of Michigan 401(k) Plan. The Plan was formerly known as the Mercantile Bank of West Michigan 401(k) Plan. (Continued) 7. SUPPLEMENTAL SCHEDULE MERCANTILE BANK OF MICHIGAN 401(k) PLAN SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR) December 31, 2005 Name of plan sponsor: Mercantile Bank of Michigan Employer identification number: 38-3360868 Three-digit plan number: 001
(c) Description of Investment Including (b) Maturity Date, Rate Identity of Issuer, of Interest, Collateral, (e) Borrower, Lessor, Par, or (d) Current (a) or Similar Party Maturity Value Cost Value ------------------------------ ----------------------------- -------- ----------- MUTUAL FUNDS Franklin Templeton Investments Franklin Growth fund, 14,666.385 shares # $ 536,203 Franklin Templeton Investments Franklin Small Mid Cap Growth fund, 14,149.651 shares # 533,713 Franklin Templeton Investments Franklin U.S. Government fund, 35,311.608 shares # 230,232 Franklin Templeton Investments Franklin Blue Chip fund, 27,946.65 shares # 421,435 Franklin Templeton Investments Franklin Capital Growth fund, 22,151.586 shares # 246,547 Franklin Templeton Investments Franklin Balance Sheet fund, 5,824.101 shares # 359,522 Franklin Templeton Investments Templeton Foreign fund, 42,902.358 shares # 544,002 Franklin Templeton Investments Templeton Growth fund, 17,397.341 shares # 399,095 Franklin Templeton Investments Mutual Beacon fund, 71,653.726 shares # 1,106,334 ----------- 4,377,083 MONEY MARKET Charles Schwab Trust Company Schwab Value Adv. Fund, 1,009.830 shares # 1,010 COMMON COLLECTIVE FUND Gartmore Capital Trust Stable Value Fund, 9,959.830 units # 193,824 COMMON STOCK * Mercantile Bank Corporation Common stock, 181,962 shares # 7,005,537 PARTICIPANT LOANS * Participants loans Bearing interest at 5.25% to 6.50% 76,883 ----------- $11,654,337 ===========
* Party in interest # Investments are participant directed, therefore historical cost is not required. 8. EXHIBITS TO REPORT ON FORM 11-K:
Exhibit No. Exhibit Description ----------- ------------------- 23.1 Consent of Independent Public Accountants
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. MERCANTILE BANK OF MICHIGAN 401(K) PLAN Date: June 19, 2006 /s/ Gerald R. Johnson, Jr., Trustee ---------------------------------------- Gerald R. Johnson, Jr., Trustee EXHIBIT INDEX
Exhibit No. Exhibit Description ----------- ------------------- 23.1 Consent of Independent Public Accountants