-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AUaUIGT8D74ksNVforlmixZJxBtUP2MnNWzx8PrCaRQM9E8dEO01BO1qnQuOJxMw VGhNDJw8WIwXCHmjugctDw== 0000950124-98-001835.txt : 19980401 0000950124-98-001835.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950124-98-001835 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANK CORP CENTRAL INDEX KEY: 0001042729 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 383360865 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 333-33081 FILM NUMBER: 98581019 BUSINESS ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 BUSINESS PHONE: 6166760201 MAIL ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 10KSB40 1 FORM 10-KSB/405 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-KSB [X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 Commission File No. 333-33081 MERCANTILE BANK CORPORATION (Name of small business issuer in its charter) MICHIGAN 38-3360865 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 216 NORTH DIVISION AVENUE, GRAND RAPIDS, MICHIGAN 49503 (Address of principal executive offices) (616) 242-9000 (Issuer's telephone number) Securities registered under Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Act: NONE Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenue for its most recent fiscal year was $153,000. The aggregate market value of voting stock of the registrant held by nonaffiliates was approximately $16,648,000 as of February 2, 1998; based on the average of the closing bid and asked prices ($13.75) on that date. (For purposes of this calculation, 284,200 shares owned by the members of the Corporation's Board of Directors have been excluded.) As of March 23, 1998, 1,495,000 shares of Common Stock of the issuer were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Parts II and III Portions of 1997 Annual Report to the Shareholders of the issuer for the period from July 15, 1997 (inception) to December 31, 1997. Part III Portions of the Proxy Statement of the issuer dated March 16, 1998 Transitional Small Business Disclosure Format YES NO X ---- ---- 2 PART I ITEM 1. DESCRIPTION OF BUSINESS THE CORPORATION Mercantile Bank Corporation (the "Corporation") is a bank holding company under the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). As a bank holding company, the Corporation is subject to regulation by the Federal Reserve Board. The Corporation was organized on July 15, 1997, under the laws of the State of Michigan, and formed Mercantile Bank of West Michigan (the "Bank"), which commenced business on December 15, 1997. The Corporation exists primarily for the purpose of holding all of the stock of the Bank, and of such other subsidiaries as the Corporation may acquire or establish. The expenses of the Corporation to date have generally been paid using the proceeds from its initial public stock offering, in October of 1997. The Corporation's principal source of future operating funds is expected to be dividends from the Bank. THE BANK The Bank is a state banking corporation which operates under the laws of the State of Michigan, pursuant to a charter issued by the Financial Institutions Bureau of the State of Michigan. The Bank's deposits are insured to the maximum extent provided by the Federal Deposit Insurance Corporation. The Bank, through its office at 216 North Division Avenue, Grand Rapids, Michigan provides a wide variety of commercial banking services to individuals, businesses, governmental units, and other institutions. Its services include accepting time, demand and savings deposits, including regular checking accounts, NOW and money market accounts, and certificates of deposit. In addition, the Bank makes secured and unsecured commercial, construction, mortgage, and consumer loans, finances commercial transactions, and provides safe deposit facilities. The Bank has an automated teller machine ("ATM") which participates in the Magic Line system, a regional network, as well as other ATM networks throughout the country. In addition to the foregoing services, the Bank provides its customers with extended banking hours, and is testing a system to perform certain transactions by telephone to be provided by its data processing vendor. The Bank does not have trust powers. EFFECT OF GOVERNMENT MONETARY POLICIES The earnings of the Corporation are affected by domestic economic conditions and the monetary and fiscal policies of the United States government, its agencies, and the Federal Reserve Board. The Federal Reserve Board's monetary policies have had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order to, among other things, curb inflation or avoid a recession. The policies of the Federal Reserve Board have a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities, and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. The Bank maintains reserves with the Federal Reserve Bank on a pass-through basis through a correspondent financial institution. 2 3 REGULATION AND SUPERVISION The Corporation, as a bank holding company under the Bank Holding Company Act, is required to file an annual report with the Federal Reserve Board and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act, and is subject to examination by the Federal Reserve Board. The Bank Holding Company Act limits the activities which may be engaged in by the Corporation and its subsidiary to those of banking and the management of banking organizations, and to certain non-banking activities, including those activities which the Federal Reserve Board may find, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board is empowered to differentiate between activities by a bank holding company, or a subsidiary thereof, and activities commenced by acquisition of a going concern. With respect to non-banking activities, the Federal Reserve Board has, by regulation, determined that certain non-banking activities are closely related to banking within the meaning of the Bank Holding Company Act. These activities include, among other things, operating a mortgage company, finance company, credit card company or factoring company, performing certain data processing operations, providing certain investment and financial advice, acting as an insurance agent for certain types of credit related insurance, leasing property on a full-payout, nonoperating basis; and, subject to certain limitations, providing discount securities brokerage services for customers. The Corporation has no current plans to engage in non-banking activities. The Bank is subject to certain restrictions imposed by federal law on any extension of credit to the Corporation for investments in stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Federal law prevents the Corporation from borrowing from the Bank unless the loans are secured in designated amounts. With respect to the acquisition of banking organizations, the Corporation is required to obtain the prior approval of the Federal Reserve Board before it can acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank. Acquisitions across state lines are subject to certain state and Federal Reserve Board restrictions. EMPLOYEES As of December 31, 1997, the Corporation and the Bank employed 19 persons. COMPETITION All phases of the business of the Bank are highly competitive. The Bank competes with numerous financial institutions, including other commercial banks in Kent County, Michigan, including the City of Grand Rapids. The Bank, along with other commercial banks, competes with respect to its lending activities, and competes in attracting demand deposits, with savings banks, savings and loan associations, insurance companies, small loan companies, credit unions and with the issuers of commercial paper and other securities, such as various mutual funds. Many of these institutions are substantially larger and have greater financial resources than the Bank. The competitive factors among financial institutions can be classified into two categories; competitive rates and competitive services. Interest rates are widely advertised and thus competitive, especially in the area of time deposits. From a service standpoint, financial institutions compete against 3 4 each other in types and quality of services. The Bank is generally competitive with other financial institutions in its area with respect to interest rates paid on time and savings deposits, charges on deposit accounts, and interest rates charged on loans. With respect to services, the Bank offers a customer service oriented atmosphere which management believes is better suited to its customers than that offered by other institutions in the local market. Pursuant to state regulations, the Bank is limited in the amount that it may lend to a single borrower. As of December 31, 1997, the legal lending limit was approximately $2,000,000; however, that limit can be expanded (for individual loans) to approximately $3,300,000 with approval of the Board of Directors. SELECTED STATISTICAL INFORMATION A. Distribution of Assets, Liabilities and Shareholder's Equity B. Interest Rates and Interest Differential The information required by these sections are not applicable to the Corporation as the Bank has been in operation since December 15, 1997 and the resulting information would not be meaningful. SECURITIES PORTFOLIO A. Book value of investments in US Treasury and other U.S. Government agencies; States of the U.S. and political subdivisions; and other securities and maturities along with weighted average yield of each. The Corporation held only U.S. Treasury securities at December 31, 1997 with a book value of $3,001,131. These securities all mature within one year and have a weighted average yield of 5.58%. LOAN PORTFOLIO Residential real estate loans are generally for owner occupied, one to four family homes, that are secured by mortgages. The majority of these loans have a fixed interest rate. The Bank has no material foreign or agricultural loans, and no material loans to energy producing customers. The following table presents the maturity of total loans outstanding, other than residential mortgages and personal loans, as of December 31, 1997, according to scheduled repayments of principal. All figures are stated in thousands of dollars.
0 - 1 1 - 5 After 5 Year Years Years Total ---- ----- ----- ----- Business - fixed rate $ 0 $ 3,816 $ 2,398 $ 6,214 Business - variable rate 2,625 3,748 300 6,673 ---------------------------------------- Total Loans $ 2,625 $ 7,564 $ 2,698 $12,887 ======== ======== ========= =======
Loans are placed in a nonaccrual status when, in the opinion of management, uncertainty exists as to the ultimate collection of principal and interest. For the period ended December 31, 1997, no loans were placed in nonaccrual status. At December 31, 1997, there were no significant loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrower to comply with present loan repayment terms and which, in management's judgment, may result in disclosure of such loans. Furthermore, management is not aware of any potential 4 5 problem loans which could have a material effect on the Corporation's operating results, liquidity, or capital resources. Management is not aware of any other factors that would cause future net loan charge-offs, in total and by loan category, to significantly differ from those experienced by institutions of similar size. Loans at December 31, 1997 were as follows: LOAN PORTFOLIO Commercial $ 12,701,000 Consumer 186,000 ------------ Total $ 12,887,000 ============
ALLOWANCE FOR LOAN LOSSES The following table summarizes changes in the allowance for loans and lease losses arising from additions to the allowance which have been charged to expense and selected ratios:
Period from July 15, 1997 (inception) through December 31, 1997 ------------------------------- (in thousands) Balance @7/15/97 (date of inception) $ 0 Provision charged to operating expense 193,000 Net (loss) recovery $ 0 ------------ Balance at year end $ 193,000 ============ Average loans outstanding $ 439,000 Total loans at year end $ 12,887,000 Ratio of net charge offs during period to average loans outstanding 0 Allowance for loan losses as a percentage of loans @ period end 1.50%
In each accounting period, the allowance for loan and lease losses is adjusted by management to the amount necessary to maintain the allowance at adequate levels. Through its credit department, management will attempt to allocated specific portions of the allowance for loan losses based on specifically identifiable problem loans. Management's evaluation of the allowance is further based on consideration of actual loss experience, the present and prospective financial condition of borrowers, industry concentrations within the portfolio and general economic conditions. Management believes that the present allowance is adequate, based on the broad range of considerations listed above. At December 31, 1997, the entire balance of the allowance for loan losses was allocated to commercial loans which represented 98.6% of total loans outstanding. 5 6 The primary risk element considered by management with respect to each installment and residential real estate loan is lack of timely payment. Management has a reporting system that monitors past due loans and has adopted policies to pursue its creditor's rights in order to preserve the Bank's position. The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and lack of timely payment. Management has a policy of requesting and reviewing periodic financial statements from its commercial loan customers, and periodically reviews existence of collateral and its value. Although management believes that the allowance for loan and lease losses is adequate to absorb losses as they arise, there can be no assurance that the Bank will not sustain losses in any given period which could be substantial in relation to the size of the allowance for loans and lease losses. RETURN ON EQUITY AND ASSETS The following table contains selected ratios:
Period from July 15, 1997 (inception) to December 31, 1997 ------------------------------------ Return on average total assets (21.8%) Return on average equity (30.9%) Dividend payout ratio N/A Average equity to average assets 70.4%
ITEM 2. DESCRIPTION OF PROPERTY The Bank leases a one story building in downtown Grand Rapids, Michigan for use as its main office. The executive offices of the Corporation are located in the same building. The building lease has an initial term of ten years, with four, five year renewal options. ITEM 3. LEGAL PROCEEDINGS As a depository of funds, the Bank could occasionally be named as a defendant in lawsuits (such as garnishment proceedings) involving claims to the ownership of funds in particular accounts. Such litigation is incidental to the Bank's business. No litigation is pending in which the Corporation, or the Bank, is likely to experience loss or exposure which would materially affect the Corporation's equity, financial position, or liquidity as presented herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 6 7 EXECUTIVE OFFICERS OF THE REGISTRANT Name and Position Position Held Since Age ----------------- ------------------- --- Gerald R. Johnson, Jr. 1997-present 51 Chairman of the Board and Chief Executive Officer Michael H. Price 1997-present 41 President and Chief Operating Officer PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information shown under the caption "Stock Information" on page S-20 of the Notice of Annual Meeting, Proxy Statement & 1997 Annual Report of the Corporation ("Proxy Statement & 1997 Annual Report") furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. In October of 1997, the Company commenced an initial public offering of its Common Stock. Pursuant to the public offering, the Company registered for sale to the public under the Securities Act of 1933, 1,495,000 shares of its Common Stock. The registration statement for the public offering was assigned Securities and Exchange Commission ("SEC") file number 333-33081, and became effective on October 23, 1997. Of the 1,495,000 shares registered with the SEC, the closing for the 1,300,000 firm shares included in the offering occurred on October 29, 1997, and the closing for the 195,000 shares included in the Underwriter's over-allotment option occurred on November 6, 1997. Accordingly, the public offering terminated by November 6, 1997, after all of the 1,495,000 shares covered by the registration statement had been sold by the Company. The managing underwriter for the offering was Roney & Co., L.L.C. The shares were sold to the public at a price of $10 per share for an aggregate offering price of $14,950,000. In connection with the offering, the Company paid underwriting discounts and commissions of approximately $866,000, and other expenses of approximately $203,000; for a total of approximately $1,069,000 of aggregate underwriting discounts and commissions, and other expenses of the offering. The net proceeds of the offering received by the Company, after deducting the discounts, commissions, and other expenses of the offering was approximately $13,881,000. The approximately $13,881,000 of proceeds received by the Company in the offering was applied as follows: (a) Approximately $835,500 was applied to repay loans that had been made by Directors of the Company to cover organizational and other preopening expenses of the Company, $145,000 of which was used by the Company to pay salaries of officers of the Company for the period prior to the opening of the Bank on December 15, 1997. In addition, the $203,000 of other expenses of the offering were paid out of this balance. The Company did not use the full $835,500 during organization and the remaining balance of the loans and the remaining balance of proceeds after investment in the Bank (discussed in (b) below) of approximately $537,000 was invested in short term investments. 7 8 (b) Approximately $13,000,000 was invested in the Bank. The Bank has applied approximately $545,000 of this amount for leasehold improvements and related architectural and engineering services, and approximately $409,000 of this amount to purchase furniture, fixtures, equipment and other necessary assets for the Bank's operations. Of the $545,000 paid for leasehold improvements, $472,000 was paid to Visser Brothers Inc. to renovate the building that the Bank is leasing for its main office. Dale Visser and Bruce Visser, who are brothers, are owners of a substantial majority of Visser Brothers. Dale Visser is a member of the Board of Directors of the Company and the Bank, and both were organizers of the Bank. Of the remaining $12,046,000 received by the Bank from the Company, the Bank applied approximately $6,503,000 for working capital, approximately $2,543,000 for loans to customers, and approximately $3,000,000 to purchase U. S. Treasury securities. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The information shown under the caption "Plan of Operation" on page S-3 of the Proxy Statement & 1997 Annual Report of the Corporation, furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. The Corporation is in the process of assessing the impact of the arrival of 2000 on its computerized information systems and other electronic equipment. The "year 2000 problem" is the result of abbreviating an applicable year with two digits rather than four. As a result, computer programs and other devices may interpret a date field of "00" as 1900 rather than 2000. Such a miscalculation could lead to system malfunction or complete failure. The Corporation's main data processing vendor has represented to the Company that it will be year 2000 compliant by year 2000, and has provided updates on its progress to the Corporation. In addition, the Corporation has begun an internal evaluation of equipment and vendor supplied products. While this effort will involve additional costs, the amount is not expected to have a material adverse impact on the Corporation's financial position, results of operations, or cash flow in future periods. However, if the Corporation (or its customers or vendors) are unable to remedy the problems in a timely manner, it could result in a material financial risk. ITEM 7. FINANCIAL STATEMENTS The information presented under the captions "Consolidated Balance Sheet," "Consolidated Statement of Income," "Consolidated Statement of Changes in Shareholders' Equity," "Consolidated Statement of Cash Flows," and "Notes to Consolidated Financial Statements," as well as the Report of Independent Auditors, Crowe, Chizek and Company LLP, dated February 6, 1998, on pages S-4 through S-19 of the Proxy Statement & 1997 Annual Report of the Corporation, furnished to the Commission as Exhibit 13 to this Report are incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 8 9 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information listed under the caption "Information about Directors and Nominees as Directors" on pages 3 through 6 of the Proxy Statement & 1997 Annual Report of the Corporation furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. ITEM 10. EXECUTIVE COMPENSATION The information presented under the captions "Summary Compensation Table," "Options Granted in 1997," and "Aggregated Stock Option Exercises in 1997 and Year End Option Values" on pages 7 and 8 of the Proxy Statement & 1997 Annual Report of the Corporation furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information presented under the caption "Stock Ownership of Certain Beneficial Owners and Management" on pages 2 and 3 of the Proxy Statement & 1997 Annual Report of the Corporation furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information listed under the caption "Certain Transactions" on pages 8 and 9 of the Proxy Statement & 1997 Annual Report of the Corporation furnished to the Commission as Exhibit 13 to this Report is incorporated by reference herein. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT NO. EXHIBIT DESCRIPTION ----------- ------------------- 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's Registration Statement on Form SB-2 (Commission File no. 333-33081) that become effective on October 23, 1997 3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective on October 23, 1997 10.1 1997 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective on October 23, 1997 (Management contract or compensatory plan) 10.2 Lease Agreement between the Corporation and Division Avenue Partners, L.L.C. dated August 16, 1997, is incorporated by reference to exhibit 10.2 of the 9 10 Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective October 23, 1997 11 Statement re Computation of Per Share Earnings 13 Proxy Statement & 1997 Annual Report of the Corporation. Except for the portions of the Proxy Statement & 1997 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Proxy Statement & 1997 Annual Report of the Corporation shall not be deemed filed as a part thereof 20 Proxy Statement of the Corporation dated March 16, 1997 is included as part of the Proxy Statement & 1997 Annual Report of the Corporation (front cover through page 9 thereof) that is set forth as Exhibit 13 to this Annual Report on Form 10-KSB. Except for the portions of the Proxy Statement & 1997 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Proxy Statement & 1997 Annual Report of the Corporation shall not be deemed filed as a part thereof 21 Subsidiaries of the Issuer 27 Financial Data Schedule (b) Reports on Form 8-K The Corporation has not filed any reports on Form 8-K during the last quarter of the period covered by this Report. 10 11 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1998. MERCANTILE BANK CORPORATION /s/ Gerald R. Johnson, Jr. ------------------------------ Gerald R. Johnson, Jr. Chairman of the Board and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the capacities indicated on March 30, 1998. /s/ Betty S. Burton /s/ Calvin D. Murdock - ---------------------------------- -------------------------------------- Betty S. Burton, Director Calvin D. Murdock, Director /s/ Peter A. Cordes /s/ Michael H. Price - ---------------------------------- -------------------------------------- Peter A. Cordes, Director Michael H. Price, President and Chief Operating Officer /s/ C. John Gill - ---------------------------------- -------------------------------------- C. John Gill, Director Dale J. Visser, Director /s/ David M. Hecht /s/ Donald Williams - ---------------------------------- -------------------------------------- David M. Hecht, Director Donald Williams, Director /s/ Gerald R. Johnson, Jr. - ---------------------------------- -------------------------------------- Gerald R. Johnson, Jr., Chairman Robert M. Wynalda, Director Board and Chief Executive Officer of the (principal executive officer and principal financial officer) /s/ Susan K. Jones /s/ Michael J. Sankey - ---------------------------------- -------------------------------------- Susan K. Jones, Director Michael J. Sankey (principal accounting officer) /s/ Lawrence W. Larsen - ---------------------------------- Lawrence W. Larsen, Director 11 12 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's Registration Statement on Form SB-2 (Commission File no. 333-33081) that become effective on October 23, 1997 3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective on October 23, 1997 10.1 1997 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective on October 23, 1997 (Management contract or compensatory plan) 10.2 Lease Agreement between the Corporation and Division Avenue Partners, L.L.C. dated August 16, 1997, is incorporated by reference to exhibit 10.2 of the Corporation's Registration Statement on Form SB-2 (Commission File No. 333-33081) which became effective October 23, 1997 11 Statement re Computation of Per Share Earnings 13 Proxy Statement & 1997 Annual Report of the Corporation. Except for the portions of the Proxy Statement & 1997 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Proxy Statement & 1997 Annual Report of the Corporation shall not be deemed filed as a part thereof 20 Proxy Statement of the Corporation dated March 16, 1997 is included as part of the Proxy Statement & 1997 Annual Report of the Corporation (front cover through page 9 thereof) that is set forth as Exhibit 13 to this Annual Report on Form 10-KSB. Except for the portions of the Proxy Statement & 1997 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Proxy Statement & 1997 Annual Report of the Corporation shall not be deemed filed as a part thereof 21 Subsidiaries of the Issuer 27 Financial Data Schedule 12 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS STATEMENT OF COMPUTATION OF PER SHARE EARNINGS Net loss (404,000) Average shares outstanding 1,495,000 Basic and diluted loss per share (0.27) As the stock options issued had an antidilutive effect on earnings per share, the effect of the stock options are not disclosed. EX-13 3 EXHIBIT 13 1 EXHIBIT 13 MERCANTILE BANK CORPORATION 216 NORTH DIVISION AVENUE GRAND RAPIDS, MICHIGAN 49503 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 21, 1998 TO THE HOLDERS OF SHARES OF COMMON STOCK OF MERCANTILE BANK CORPORATION NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of MERCANTILE BANK CORPORATION will be held at its main office at 216 North Division Avenue, Grand Rapids, Michigan on Tuesday, April 21, 1998, at 10:00 a.m., for the purpose of considering and voting upon the following matters: 1. ELECTION OF DIRECTORS. To elect four Class I directors for a three year term, as detailed in the accompanying Proxy Statement. 2. OTHER BUSINESS. To transact such other business as may properly be brought before the meeting or any adjournment or adjournments thereof. Only those shareholders of record at the close of business on Monday, March 2, 1998, shall be entitled to notice of and to vote at the meeting. We urge you to sign and return the enclosed proxy as promptly as possible, whether or not you plan to attend the meeting in person. We would appreciate receiving your proxy by Tuesday, April 14, 1998. By Order of the Board of Directors, /s/ Gerald R. Johnson, Jr. Gerald R. Johnson, Jr. Chairman of the Board & Chief Executive Officer Dated: March 16, 1998 2 MERCANTILE BANK CORPORATION 216 NORTH DIVISION AVENUE GRAND RAPIDS, MICHIGAN 49503 March 16, 1998 PROXY STATEMENT GENERAL INFORMATION This Proxy Statement is furnished to shareholders of Mercantile Bank Corporation (the "Corporation") in connection with the solicitation of proxies by the Board of Directors of the Corporation, for use at the Annual Meeting of shareholders of the Corporation to be held on Tuesday, April 21, 1998, at 10:00 a.m., at its main office at 216 North Division Avenue, Grand Rapids, Michigan, and at any and all adjournments thereof. It is expected that the proxy materials will be mailed to shareholders on or about March 16, 1998. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its exercise. Unless the proxy is revoked, the shares represented thereby will be voted at the Annual Meeting or any adjournment thereof. The entire cost of soliciting proxies will be borne by the Corporation. Proxies may be solicited by mail, facsimile or telegraph, or by directors, officers, or regular employees of the Corporation or its subsidiary, in person or by telephone. The Corporation will reimburse brokerage houses and other custodians, nominees and fiduciaries for their out-of-pocket expenses for forwarding soliciting material to the beneficial owners of Common Stock of the Corporation. The Board of Directors, in accordance with the By-Laws of the Corporation, has fixed the close of business on March 2, 1998 as the record date for determining shareholders entitled to notice of and to vote at the Annual Meeting and at any and all adjournments thereof. At the close of business on such record date, the outstanding number of voting securities of the Corporation was 1,495,000 shares of Common Stock, each of which is entitled to one vote. ELECTION OF DIRECTORS The Corporation's Certificate of Incorporation and By-Laws provide that the number of directors, as determined from time to time by the Board of Directors, shall be no less than six and no more than fifteen. The Board of Directors has presently fixed the number of directors at twelve. The Certificate of Incorporation and By-Laws further provide that the directors shall be 1 3 divided into three classes, Class I, Class II and Class III, with each class serving a staggered three year term and with the number of directors in each class being as nearly equal as possible. The Board of Directors has nominated C. John Gill, Gerald R. Johnson, Jr., Calvin D. Murdock, and Donald Williams, Sr. as Class I directors for three year terms expiring at the 2001 Annual Meeting and upon election and qualification of their successors. Each of the nominees is presently a Class I director of the Corporation whose term expires at the April 21, 1998 Annual Meeting of the shareholders. The other members of the Board, who are Class II and Class III directors, will continue in office in accordance with their previous elections until the expiration of their terms at the 1999 or 2000 Annual Meeting, as the case may be. It is the intention of the persons named in the enclosed proxy to vote such proxy for the election of the four nominees listed herein. The proposed nominees for election as director are willing to be elected and serve; but in the event that any nominee at the time of election is unable to serve or is otherwise unavailable for election, the Board of Directors may select a substitute nominee, and in that event the persons named in the enclosed proxy intend to vote such proxy for the person so elected. If a substitute nominee is not so selected, such proxy will be voted for the election of the remaining nominees. The affirmative vote of a plurality of the votes cast at the meeting is required for the nominees to be elected. STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table presents information regarding the beneficial ownership of the Corporation's Common Stock as of February 1, 1998, by the nominees for election as directors of the Corporation, the directors of the Corporation whose terms of office will continue after the Annual Meeting, the executive officer named in the Summary Compensation Table, and all directors and executive officers of the Corporation as a group.
- --------------------------------------------------------------------------------------------------------- Amount Percent of Class Beneficially Beneficially Name of Beneficial Owner Owned (1) Owned (4) - -------------------------------------------------------------------------------------------------------- Betty S. Burton................................................ 2,000 .1% Peter A. Cordes................................................ 25,000 1.7% C. John Gill................................................... 28,000 1.9% David M. Hecht................................................. 50,000 3.3% Gerald R. Johnson, Jr.......................................... 60,000(2) 4.0% Susan K. Jones................................................. 0 0% Lawrence W. Larsen............................................. 13,500 .9% Calvin D. Murdock.............................................. 15,000 1.0% Michael H. Price............................................... 7,700(3) .5% Dale J. Visser................................................. 50,000 3.3% Donald Williams, Sr............................................ 0 0% Robert M. Wynalda.............................................. 50,000 3.3% All directors and executive officers of the Corporation as a group (12 persons)............................ 301,200 19.9%
2 4 - ----------------------------- (1) Some or all of the Common Stock listed may be held jointly with, or for the benefit of, spouses and children of, or various trusts established by, the person indicated. (2) Includes 10,000 shares that such person has the right to acquire within 60 days of February 1, 1998 pursuant to the Corporation's Employee Stock Option Plan. Such person also holds an option under this Plan to purchase an additional 30,000 shares, which has not yet vested. (3) Includes 7,000 shares that such person has the right to acquire within 60 days of February 1, 1998, pursuant to the Corporation's 1997 Stock Option Plan. Such person also holds an option under this Plan to purchase an additional 14,000 shares, which has not yet vested. (4) The percentages shown are based on the 1,495,000 shares of the Corporation's Common Stock outstanding as of February 1, 1998, plus the number of shares that the named person or group has the right to acquire within 60 days of February 1, 1998. To the best of the Corporation's knowledge, no person owns more than 5% of the Corporation's outstanding Common Stock. INFORMATION ABOUT DIRECTORS AND NOMINEES AS DIRECTORS The following information is furnished with respect to each person who is presently a director of the Corporation whose term of office will continue after the Annual Meeting of shareholders, as well as those persons who have been nominated for election as a director, each of whom is presently a director of the Corporation as well as a director of Mercantile Bank of West Michigan (the "Bank") which is the Corporation's subsidiary.
- ------------------------------------------------------------------------------------------------------------ Name, Age, and Position with Has Served As Year When Term As a the Corporation and the Bank Director Since Director Expires - ------------------------------------------------------------------------------------------------------------ Betty S. Burton, 56, Director 1998 1999 Peter A. Cordes, 57, Director 1997 1999 C. John Gill, 64, Director 1997 1998 David M. Hecht, 60, Director 1997 1999 Gerald R. Johnson, Jr., 51, Chairman of the 1997 1998 Board, Chief Executive Officer, and Director Susan K. Jones, 48, Director 1998 2000 Lawrence W. Larsen, 58, Director 1997 2000 Calvin D. Murdock, 58, Director. 1997 1998 Michael H. Price, 41, President, Chief 1997 2000 Operating Officer and Director Dale J. Visser, 61, Director 1997 2000 Donald Williams, Sr., 61, Director 1998 1998 Robert M. Wynalda, 62, Director 1997 1999
The experience and background of each of the directors is summarized below: BETTY S. BURTON (Director) Betty S. Burton is President and Chief Executive Officer of Wonderland Business Forms, Inc. She has held director positions at First Michigan Bank and Butterworth Hospital. She is active in the Grand Rapids community, working with the City of Grand Rapids International Relations Committee, the Children's Museum, Grand Rapids 3 5 Foundation Distribution Committee, and Grand Rapids Urban League as well as other organizations. Further, she has authored numerous papers on Diversity and Women in the Work Place and frequently speaks to school age children (kindergarten through 12th) on topics such as "The World of Work," "Entrepreneurship," and "African American History and Current Events." Betty resides in Grand Rapids, MI. PETER A. CORDES (Director) Mr. Cordes has served as President and Chief Executive Officer of GWI Engineering Inc. ("GWI") of Grand Rapids, Michigan since 1991. GWI is engaged in the manufacturing of industrial automation systems for customers in a variety of industries in the Midwest. Mr. Cordes purchased GWI in 1991 and is now sole owner. Mr. Cordes is a 1966 graduate of St. Louis University with a degree in aeronautics. He is a native of Traverse City, Michigan and has spent the last eighteen years in West Michigan. C. JOHN GILL (Director) Mr. Gill is the retired Chairman of the Board and one of the owners of Gill Industries of Grand Rapids, Michigan. Mr. Gill served as Chairman of Gill Industries from 1994 through 1997, and served as President of Gill Industries from 1983 through 1993. Gill Industries is a manufacturing company involved with sheet metal stampings and assemblies for the automotive and appliance industries. Mr. Gill is a native of Lakeview, Michigan. DAVID M. HECHT (Director) Mr. Hecht is an attorney with the law firm, Hecht & Lentz, in Grand Rapids, Michigan. He is Chairman and one of the owners of the law firm. Mr. Hecht established the firm in 1993. Prior to this, he was a partner in the Grand Rapids office of the law firm of Dickinson, Wright, Moon, Van Dusen & Freeman. Mr. Hecht is a native of Grand Rapids and a graduate of the University of Michigan and the University of Wisconsin. He has practiced law for 36 years, including the past 25 years in Grand Rapids. Mr. Hecht is on the Board of Trustees of the Grand Valley University Foundation and a Director of Hospice Foundation of Greater Grand Rapids. GERALD R. JOHNSON, JR. (Chairman of the Board, Chief Executive Officer, and Director) has over 27 years experience in the financial service industry, including 24 years of commercial banking experience. Mr. Johnson was appointed President and Chief Executive Officer of FMB-Grand Rapids in 1986, and served as Chairman, President and Chief Executive Officer from 1988 to May of 1997, when he resigned to organize the Company. In the Grand Rapids market, prior to joining FMB-Grand Rapids, Mr. Johnson was employed in various lending capacities by Union Bank (now part of First Chicago NBD), Pacesetter Bank-Grand Rapids (now part of Old Kent), and Manufacturers Bank (now part of Comerica Bank). Mr. Johnson has been involved in charitable and community activities for many years. He currently serves as Vice Chairman of the Board of the Downtown YMCA, Chairman of Residential Treatment of West Michigan, and is affiliated with Life Guidance Services, American Heart Association of Greater Grand Rapids, Economic Development Foundation, Grand Rapids Rotary Club, Junior League of Grand Rapids, and Michigan Trails Girl Scout Council. Mr. Johnson also has past affiliations with Hope Network, and the Grand Rapids Area Chamber of Commerce where he was a board member for six years. SUSAN K. JONES (Director) Susan K. Jones is both owner of Susan K. Jones & Associates Direct Marketing and Advertising and a tenured, full-time Associate Professor of Marketing at Ferris State University in Big Rapids, Michigan. She began her firm in 1980, and joined Ferris State in the fall of 1990. Ms. Jones has received many awards for her marketing prowess. She enjoys an 4 6 active volunteer career, currently serving as secretary of the Arts Council of Greater Grand Rapids and as the West Michigan Alumni Admissions Council Chair for Northwestern University. She is a past-president of the Junior League of Grand Rapids, a graduate of leadership Grand Rapids, and currently serves as Board Chair of Youth Development and President of the TV Production Boosters in her school district. She is a resident of East Grand Rapids, Michigan. LAWRENCE W. LARSEN (Director) Mr. Larsen is Chief Executive Officer, President, and owner of Central Industrial Corporation of Grand Rapids, Michigan. He began his employment with the company in 1967, and purchased it in 1975. Central Industrial Corporation is a wholesale distributor of industrial supplies. Mr. Larsen is also an owner and director of Jet Products, Inc. of West Carrollton, Ohio. Jet Products, Inc. designs, manufactures and sells hose reels and related hydraulic products. Mr. Larsen is a native of Wisconsin. He has spent the last 31 years in the Grand Rapids area. Mr. Larsen is an active supporter of the Catholic secondary schools system in Grand Rapids. Mr. Larsen served as a director of FMB-Grand Rapids from 1980 until June of 1997, and was a member of the Executive Loan Committee and the Audit Committee. CALVIN D. MURDOCK (Director) Mr. Murdock is President of SF Supply ("SF") of Grand Rapids, Michigan. He has held this position since 1994. From 1992 to 1994, he served as the General Manager of SF, and in 1991, served as SF's Controller. SF is a wholesale distributor of commercial and industrial electronic, electrical and automation parts, supplies and services. Mr. Murdock is a Michigan native and a graduate of Ferris State University with a degree in accounting. Prior to joining SF, Mr. Murdock owned and operated businesses in the manufacturing and supply of automobile wash equipment. MICHAEL H. PRICE (President and Chief Operating Officer) Michael H. Price has over 17 years of commercial banking experience, most of which was with First Michigan Bank Corporation and its subsidiary FMB-First Michigan Bank-Grand Rapids. Spending most of his banking career in Commercial Lending, Mr. Price was the Senior Lending Officer, then President before joining Mercantile Bank of West Michigan. Mike has been and continues to be very active in the Grand Rapids community. He currently serves as the Vice Chairman of Project Rehab's Board of Directors. DALE J. VISSER (Director) Mr. Visser is Chairman and one of the owners of Visser Brothers Inc. of Grand Rapids, Michigan. He has served this company in various officer positions since 1960. Visser Brothers is a construction general contractor specializing in commercial buildings. Mr. Visser also has an ownership interest in several real estate projects in the Grand Rapids area including Eastbrook Mall and Breton Village Shopping Center. Mr. Visser served as a director of FMB-Grand Rapids from 1972 until June of 1997. He is a Grand Rapids native and a graduate of the University of Michigan with a degree in civil engineering. Mr. Visser is active in the community having served on the boards for the Grand Rapids YMCA, Christian Rest Home, and West Side Christian School. DONALD WILLIAMS, SR. (Director) Donald Williams Sr. has over 30 years experience in administration of educational programs with special emphasis on political sensitivity. He currently is Dean of Minority Affairs and Director of the Multicultural Center of Grand Valley State University. Further, he presently serves as Treasurer and Past President of the Minority Affairs Council for Michigan Universities (MACMU), Vice President for the West Michigan 5 7 Coalition for African American Men, and is a member of the Rotary Club of Grand Rapids. He also currently holds the title of Vice President of the Coalition for Representative Government (CRG), and is a member of the Grand Rapids Area Chamber of Commerce Board of Directors and various other West Michigan community organizations. Mr. Williams has also been the recipient of numerous awards in the Grand Rapids and West Michigan community, where he currently resides. ROBERT M. WYNALDA (Director) Mr. Wynalda is the retired Chief Executive Officer and former owner of Wynalda Litho Inc. of Rockford, Michigan. Mr. Wynalda held the position of Chief Executive Officer from 1970 when he founded the company until its sale in February of 1998. Wynalda Litho Inc. is a commercial printing company serving customers from around the country. Mr. Wynalda is a native of Grand Rapids and has spent 45 years in the printing business. Mr. Wynalda serves on the Board of Trustees for Cornerstone College of Grand Rapids, and formerly served as a director of a local financial institution. BOARD OF DIRECTORS MEETINGS AND COMMITTEES The Corporation has standing Audit, Compensation, and Nominating Committees of the Board of Directors. The members of the Audit Committee consist of C. John Gill, David M. Hecht, and Robert M. Wynalda. The Audit Committee's responsibilities include recommending to the Board of Directors the selection of independent accountants, approving the scope of audit and non-audit services performed by the independent accountants, reviewing the results of their audit, reviewing the Corporation's internal auditing activities and financial statements, and reviewing the Corporation's system of accounting controls and recordkeeping. The members of the Compensation Committee consist of Peter A. Cordes, Lawrence W. Larson, and Calvin D. Murdock. The Compensation Committee's responsibilities include considering and recommending to the Board of Directors any changes in compensation and benefits for officers of the Corporation. At present, all officers of the Corporation are also officers of the Bank, and although they receive compensation from the Bank in their capacity as officers of the Bank, they presently receive no separate cash compensation from the Corporation. The members of the Nominating Committee consist of David M. Hecht, Dale J. Visser, and Robert M. Wynalda. The Nominating Committee is responsible for reviewing and making recommendations to the Board of Directors as to its size and composition, and recommending to the Board of Directors candidates for election as directors at the Corporation's annual meetings. The Nominating Committee will consider as potential nominees persons recommended by shareholders. Recommendations should be submitted to the Nominating Committee in care of Gerald R. Johnson, Jr., Chairman and Chief Executive Officer of the Corporation. Each recommendation should include a personal biography of the suggested nominee, an indication of the background or experience that qualifies such person for consideration, and a statement that such person has agreed to serve if nominated and elected. Shareholders who themselves wish to effectively nominate a person for election to the Board of Directors, as contrasted with recommending a potential nominee to the Nominating Committee 6 8 for its consideration, are required to comply with the advance notice and other requirements set forth in the Corporation's Articles of Incorporation. During the period from July 15, 1997 (inception) to December 31, 1997, there were a total of four meetings of the Board of Directors of the Corporation. Each director attended at least 75% of the total number of meetings of the Board of Directors held during the period that the director served. There was one meeting of the Audit Committee, one meeting of the Compensation Committee, and one meeting of the Nominating Committee during 1997. During 1997, no compensation was paid to any directors of the Corporation for their services in such capacities. SUMMARY COMPENSATION TABLE The following table details the compensation received by the named executive for the period from July 15, 1997 (inception ) to December 31, 1997:
Long Term Annual Compensation Compensation ------------------- ------------ Name and Principal All Other Position Year Salary Bonus Options Compensation - ------------ ---- ------ ----- ------- ------------ Gerald R. Johnson, Jr., 1997 $83,654 0 40,000 0 Chairman of the Board and Chief Executive Officer
OPTIONS GRANTED IN 1997 Under the Corporation's 1997 Employee Stock Option Plan, stock options are granted to the Corporation's and the Bank's senior management and other key employees. The Board of Directors of the Corporation is responsible for awarding the stock options. These options are awarded to give senior management and key employees an additional interest in the Corporation from a shareholder's perspective, and enable them to participate in the future growth and profitability of the Corporation. In making awards, the Board may consider the position and responsibilities of the employee, the nature and value of his or her services and accomplishments, the present and potential contribution of the employee to the success of the Corporation, and such other factors as the Board may deem relevant. The following table provides information on options granted to the named executive during the period from July 15, 1997 (inception) to December 31, 1997: 7 9
Individual Grants ----------------- Number of % of Total Shares Options Underlying Granted to Exercise or Options Employees Base Price Expiration Name Granted (1) in 1997 Per Share (2) Date ---- --------------- ----------- ------------- ------- Gerald R. Johnson, Jr., 40,000 51% $10.00 July 21, 2007 Chairman of the Board and Chief Executive Officer
- ---------------- (1) The option was immediately exercisable for 10,000 shares as of July 22, 1997, and becomes exercisable for an additional 10,000 of the shares covered by the option on each July 22 thereafter, until July 22, 2000, when it is exercisable in full for all 40,000 shares. (2) The exercise price equals the price at which the Corporation offered its stock to the public in its initial public offering. The exercise price may be paid in cash, by the delivery of previously owned shares, or a combination thereof. AGGREGATED STOCK OPTION EXERCISES IN 1997 AND YEAR END OPTION VALUES The following table provides information on the exercise of stock options during the year ended December 31, 1997 by the named executive and the value of unexercised options at December 31, 1997:
Value of Number of Unexercised Unexercised In-the-Money Shares Options at Options at Acquired on Value 12/31/97 12/31/97 (1) Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable ---- ----------- -------- ------------------------- ------------------------- Gerald R. Johnson, Jr., None N/A 10,000/30,000 $5,000/$15,000 Chairman of the Board and Chief Executive
- ----------------------------- (1) In accordance with the SEC's rules, values are calculated by subtracting the exercise price from the fair market value of the underlying Common Stock. For purposes of this table, fair market value is deemed to be $10.50 per share, the average of the closing bid and asked prices reported on the OTC Bulletin Board on December 31, 1997. CERTAIN TRANSACTION The Bank has had, and expects in the future to have, loan and other financial transactions in the ordinary course of business with the Corporation's directors, executive officers, and principal shareholders (and their associates) on substantially the same terms as those prevailing for comparable transactions with others. All such transactions (i) were made in the ordinary course of business, (ii) were made on substantially the same terms, including 8 10 interest rates and collateral on loans, as those prevailing at the time for comparable transactions with other persons, and (iii) in the opinion of management did not involve more than the normal risk of collectibility or present other unfavorable features. In 1997, the Bank contracted with Visser Brothers Inc. to renovate the building that the Bank is leasing for its main office. Dale Visser and Bruce Visser, who are brothers, are owners of a substantial majority of Visser Brothers. Dale Visser is a member of the Board of Directors of the Corporation and the Bank, and both were organizers of the Bank. The contract provided for the payment of approximately $450,000 to Visser Brothers for renovation work that it performed under its base bid, and an additional approximately $150,000 for work that was specified in the contract to be performed by a separate supplier. The contract was awarded to Visser Brothers after being submitted for bids. The renovations were completed in December of 1997 pursuant to specifications provided by the Bank's architect. SELECTION OF INDEPENDENT AUDITORS The Board of Directors has selected Crowe, Chizek & Company LLP as the Corporation's principal independent auditors for the year ending December 31, 1998. Representatives of Crowe, Chizek & Company LLP plan to attend the Annual Meeting of shareholders, will have the opportunity to make a statement if they desire to do so, and will respond to appropriate questions by shareholders. SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING A proposal submitted by a shareholder for the 1999 Annual Meeting of shareholders must be sent to the Secretary of the Corporation, 216 North Division Avenue, Grand Rapids, Michigan 49503, and received by November 16, 1998 in order to be eligible to be included in the Corporation's Proxy Statement for that meeting. OTHER MATTERS The Board of Directors does not know of any other matters to be brought before the Annual Meeting. If other matters are presented upon which a vote may properly be taken it is the intention of the persons named in the proxy to vote the proxies in accordance with their best judgment. 9 11 MERCANTILE BANK CORPORATION 1997 ANNUAL REPORT DECEMBER 31, 1997 12 MERCANTILE BANK CORPORATION Grand Rapids, Michigan 1997 ANNUAL REPORT CONTENTS CHAIRMAN'S MESSAGE TO SHAREHOLDERS ........................... S-2 PLAN OF OPERATION ............................................ S-3 REPORT OF INDEPENDENT AUDITORS ............................... S-4 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ................................. S-5 CONSOLIDATED STATEMENT OF INCOME ........................... S-6 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY .. S-7 CONSOLIDATED STATEMENT OF CASH FLOWS ....................... S-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................. S-9 SHAREHOLDER INFORMATION ...................................... S-20 S-1 13 A MESSAGE TO OUR SHAREHOLDERS Grand Rapids, Michigan February 28, 1998 I would like to take this opportunity to personally thank each of you for investing in Mercantile Bank Corporation--for becoming one of our owners. Mercantile Bank Corporation was formed to own Mercantile Bank of West Michigan, a financial institution committed to the philosophy of community banking. Although de novo banks are not an original concept, Mercantile Bank is somewhat unusual for a new community bank due both to its significant amount of initial capital ($13 million) and the exceptional level of experience and seniority of our staff. We believe we know and understand what our customers want and expect from us. Although we are "new," our capital allows us to deliver products and services of outstanding quality and competitive prices. The experience of our staff at other banking institutions has enabled us to formulate and implement our business concept that constitutes the core of our overall mission. Our board of directors, many of whom are founders of and investors in Mercantile Bank Corporation, has been instrumental in the development and execution of our community banking orientation and strategy. Our concept is, literally, to create an organization that reflects the values of "what banking should be." Banking is, quite frankly, about service to our customers and our community. We believe that service is at its highest levels when employees are empowered to make the decisions necessary to work with the customer in all aspects of that person's relationship with the bank. We believe that local corporate governance, through an autonomous board of directors elected by you, the owners, and living in and representing the community that we serve, is what substantiates and authenticates the empowerment of our employees. We believe that the community has readily accepted and endorsed our concept of local governance and employee empowerment: on December 15, 1997, we opened our doors for business with $13 million in assets; as of February 28, 1998, total assets stood at $74 million. Our mission is to serve the entire Grand Rapids community by providing products and services to small and medium-sized businesses and the retail consumer. We have endeavored to design and maintain a full array of deposit and loan services that are aggressively priced and, for the sake of simplicity, few in number. Service goes beyond the customer, however, and our mission also includes being a good corporate citizen within our community. Involvement in civic and philanthropic activities, whether through financial contributions, direct employee participation, or both, helps to insure that we support the community that supports us. In the final analysis, service also means service to you, our shareholders. It is our pledge to you to do the best we can to provide you with an investment that meets your expectations with regard to financial growth and economic return. On behalf of our staff I express to you our thanks for your confidence in our concept and our mission. Sincerely, /s/ Gerald R. Johnson, Jr. Gerald R. Johnson, Jr. Chairman and Chief Executive Officer S-2 14 PLAN OF OPERATION Mercantile Bank Corporation was incorporated on July 15, 1997 as a bank holding company to establish and own Mercantile Bank of West Michigan. The Bank received all necessary regulatory approvals and began operations on December 15, 1997. Based on the pre-opening growth projections and the growth levels achieved during the first several days of operations, management believes that the Bank is likely to have adequate funds to meet its capital requirements for the next several years. During the next 12 months of operation the Company does not anticipate requiring substantial additional equipment or building facilities. No significant change in the number of employees is anticipated in the next year of operations. The Bank experienced significant growth in the loan portfolio during the first 16 days of operations from December 15, 1997 to December 31, 1997. This growth has continued into 1998 and has continued at a more rapid rate than the deposit growth. Management has chosen to fund this loan growth in 1998 in part by obtaining brokered and out-of-state deposits to augment normal deposit growth and expects to continue this practice until alternative funding sources become readily available. After the first 12 months of operation, the Bank may consider advances from the Federal Home Loan Bank as an alternative. Management has staggered the maturities of brokered and out-of-state deposits with terms of 12 months to 60 months. As of December 31, 1997, the Company had a retained deficit of $404,071. This retained deficit was primarily the result of pre-opening fees and expenses totaling approximately $178,000 as well as $193,300 in provision expense to establish the allowance for loan losses at a level of 1.50% of total loans. Management believes that the Company will generate a net loss for 1998 as a result of expenditures made to build its management team and open the main office. Significant ongoing additions to loan loss reserves will also contribute to this deficit due to the projected rapid increase in the loan portfolio. Management further believes that the expenditures made in 1997 and 1998 will create the infrastructure and lay the foundation for growth in subsequent years. As of December 31, 1997, the Bank had total loans of $12,886,763, and on February 5, 1998, the loan portfolio stood at $42,338,930. Total assets at year-end were $24,109,185 and were $53,856,516 on February 5, 1998. S-3 15 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Mercantile Bank Corporation Grand Rapids, Michigan We have audited the accompanying consolidated balance sheet of Mercantile Bank Corporation as of December 31, 1997 and the related statements of income, changes in shareholders' equity and cash flows for the period from July 15, 1997 (date of inception) through December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Mercantile Bank Corporation at December 31, 1997, and the results of its operations and its cash flows for the period from July 15, 1997 (date of inception) through December 31, 1997 in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP Grand Rapids, Michigan February 6, 1998 S-4 16 MERCANTILE BANK CORPORATION CONSOLIDATED BALANCE SHEET December 31, 1997 ASSETS Cash and due from banks $ 153,300 Short term investments 3,250,000 Federal funds sold 3,700,000 ----------- Total cash and cash equivalents 7,103,300 Securities available for sale 2,997,500 Total loans 12,886,763 Allowance for loan losses (193,300) ----------- Total loans, net 12,693,463 Premises and equipment - net 953,982 Organizational costs - net 74,871 Accrued interest receivable 52,811 Other assets 233,258 ----------- Total assets $24,109,185 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 7,207,482 Interest-bearing 2,480,782 ----------- Total 9,688,264 Securities sold under agreements to repurchase 655,447 Accrued expenses and other liabilities 292,204 ----------- Total liabilities 10,635,915 Shareholders' equity Preferred stock, no par value; 1,000,000 shares authorized, none issued Common stock, no par value: 9,000,000 shares authorized and 1,495,000 shares outstanding 13,880,972 Retained deficit (404,071) Net unrealized loss on securities available for sale (3,631) ----------- Total shareholders' equity 13,473,270 ----------- Total liabilities and shareholders' equity $24,109,185 ===========
See accompanying notes to consolidated financial statements. S-5 17 MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENT OF INCOME Period from July 15, 1997 (date of inception) through December 31, 1997 Interest income Loans, including fees $ 25,761 Securities 127,868 ---------- Total interest income 153,629 Interest expense Deposits 5,760 Other 7,894 ---------- Total interest expense 13,654 ---------- NET INTEREST INCOME 139,975 Provision for loan losses (193,300) ---------- NET INTEREST LOSS AFTER PROVISION FOR LOAN LOSSES (53,325) Noninterest income Other income 45 ---------- Total noninterest income 45 Noninterest expense Salaries and benefits 254,771 Occupancy 39,101 Furniture and equipment 5,907 Other expense 51,012 ---------- Total noninterest expenses 350,791 ---------- LOSS BEFORE FEDERAL INCOME TAX (404,071) Federal income tax expense 0 ---------- NET LOSS $ (404,071) ========== Basic and diluted loss per share $ (0.27) ========== Average shares outstanding 1,495,000 ==========
See accompanying notes to consolidated financial statements. S-6 18 MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Period from July 15, 1997 (date of inception) through December 31, 1997
Net Unrealized (Loss) on Securities Total Common Retained Available Shareholders' Stock Earnings for Sale Equity ----------- ---------- ---------- ------------- BALANCE, JULY 15, 1997 (DATE OF INCEPTION) $ 0 $ 0 $ 0 $ 0 Common stock sale, December 15, 1997 13,880,972 13,880,972 Net loss for the period from July 15, 1997 (date of inception) through December 31, 1997 (404,071) (404,071) Net unrealized loss on securities available for sale (3,631) (3,631) ----------- ---------- ---------- ------------- BALANCE, DECEMBER 31, 1997 $13,880,972 $ (404,071) $ (3,631) $ 13,473,270 =========== ========== ========== =============
See accompanying notes to consolidated financial statements. S-7 19 MERCANTILE BANK CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Period from July 15, 1997 (date of inception) through December 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (404,071) Adjustments to reconcile net loss to net cash from operating activities Amortization 119 Provision for loan losses 193,300 Net change in Organizational costs (74,871) Accrued interest receivable and other assets (286,069) Accrued expenses and other liabilities 292,204 ------------ Net cash from operating activities (279,388) CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans (12,886,763) Purchase of Securities available for sale (3,001,250) Premises and equipment, net (953,982) ------------ Net cash from investing activities (16,841,995) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of 1,495,000 shares of common stock 13,880,972 Net increase in deposits 9,688,264 Net increase in securities sold under agreements to repurchase 655,447 ------------ Net cash from financing activities 24,224,683 ------------ Net change in cash and cash equivalents 7,103,300 Cash and cash equivalents at beginning of period 0 ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,103,300 ============ Supplemental disclosures of cash flow information Cash paid during the period for Interest $ 1,391
See accompanying notes to consolidated financial statements. S-8 20 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Mercantile Bank Corporation and its wholly-owned subsidiary, Mercantile Bank of West Michigan, after elimination of significant intercompany transactions and accounts. Nature of Operations: Mercantile Bank Corporation ("Corporation") was incorporated on July 15, 1997 as a bank holding company to establish and own Mercantile Bank of West Michigan ("Bank") based in Grand Rapids, Michigan. The Bank is a community-based financial institution. The Bank's loan and deposit accounts are primarily with customers located in western Michigan, within Kent County. The Bank began operations on December 15, 1997, after several months of work by incorporators and employees in preparing applications with the various regulatory agencies and obtaining insurance and building space. A portion of the costs incurred prior to opening, those associated with organizational costs ($76,148) have been capitalized and are being amortized over 60 months, while the remaining costs were expensed ($177,584) and are included in the 1997 income statement. Use of Estimates: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments are particularly subject to change. Cash Flow Reporting: Cash and cash equivalents include cash on hand, demand deposits with other financial institutions, short-term investments (securities with daily put provisions) and federal funds sold. Cash flows are reported net for customer loan and deposit transactions, interest-bearing time deposits with other financial institutions and short-term borrowings with maturities of 90 days or less. Securities: Securities available for sale consist of those securities which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities classified as available for sale are reported at their fair value and the related unrealized holding gain or loss is reported, net of related income tax effects, as a separate component of shareholders' equity, until realized. Premiums and discounts on securities are recognized in interest income using the interest method over the estimated life of the security. Gains and losses on the sale of securities available for sale are determined based upon amortized cost of the specific security sold. Loans: Loans are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. (Continued) S-9 21 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Allowance for Loan Losses: The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and recoveries, and decreased by charge-offs. Management estimates the allowance balance required based on past industry loan loss experience, known and inherent risks in similar portfolios, and economic conditions. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. Loan impairment is reported when full payment under the loan terms is not expected. Impairment is evaluated in aggregate for smaller-balance loans of similar nature such as residential mortgage, consumer and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate. Loans are evaluated for impairment when payments are delayed, typically 90 days or more, or when the internal grading system indicates a doubtful classification. There were no loans classified as impaired as of December 31, 1997 or for the period from July 15, 1997 (date of inception) through December 31, 1997. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both straight-line and accelerated methods over the estimated useful lives of the respective assets. Maintenance, repairs and minor alterations are charged to current operations as expenditures occur and major improvements are capitalized. These assets are reviewed for impairment under SFAS No. 121 when events indicate the carrying amount may not be recoverable. Stock Options: No expense for stock options is recorded, as the grant price equals the market price of the stock at grant date. Pro-forma disclosures show the effect on income and earnings per share had the options' fair value been recorded using an option pricing model. The pro-forma effect is expected to increase in the future. Options granted vest over two years and have a maximum term of ten years. Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance has been established to the extent of net deferred tax assets due to a lack of operating performance to ensure that it is more likely than not it would be recovered. (Continued) S-10 22 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Values of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on- and off-balance sheet financial instruments does not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments. Dividend Restriction: The Corporation and Bank are subject to banking regulations which require the maintenance of certain capital levels and which may limit the amount of dividends which may be paid. Earnings (Loss) Per Share: Basic earnings (loss) per share is based on weighted average common shares outstanding. Diluted earnings (loss) per share further assumes issue of any dilutive potential common shares. NOTE 2 - SECURITIES The amortized cost and fair values of securities at year-end were as follows:
AVAILABLE FOR SALE Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Values ---------- ---------- ---------- ---------- 1997 ---- U.S. Treasury securities $3,001,131 $ 0 $ (3,631) $2,997,500 ========== ========== ========== ==========
The amortized cost and fair values of debt investment securities at year-end 1997, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair Cost Values ---------- ---------- Due in one year or less $3,001,131 $2,997,500 ========== ==========
There were no sales of securities for the period from July 15, 1997 (date of inception) through December 31, 1997. Securities with a par value of approximately $500,000, were pledged to secure public deposits and for various other purposes as required or permitted by law at December 31, 1997. Securities with a par value of $2,500,000 were pledged to secure short-term borrowings at December 31, 1997. (Continued) S-11 23 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES Year-end loans are as follows: 1997 ---- Commercial $12,700,651 Consumer 186,112 ----------- $12,886,763 =========== Activity in the allowance for loan losses is as follows: 1997 ---- Balance at July 15, 1997 (date of inception) $ 0 Provision charged to operating expense 193,300 ----------- Balance at end of year $ 193,300 ===========
NOTE 4 - PREMISES AND EQUIPMENT - NET Year-end premises and equipment are as follows:
Carrying Value ---------- 1997 ---- Leasehold improvements $ 545,401 Furniture and equipment 408,581 ---------- $ 953,982 ==========
(Continued) S-12 24 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 5 - DEPOSITS Deposits at year-end are summarized as follows:
1997 ---------- Noninterest-bearing demand deposit accounts $7,207,482 Money fund checking 213,218 Savings accounts 2,089,539 Certificates of deposit 178,025 ---------- $9,688,264 ==========
At year-end 1997, maturities of deposits with a term of over one year were as follows, for the next five years: 1998 $57,862 1999 120,163 -------- $178,025 ========
There were no time deposit accounts of $100,000 or more at year-end 1997. NOTE 6 - FEDERAL INCOME TAXES The Corporation recorded no current or deferred benefit for income taxes as a result of recording the valuation allowance in the amount of net deferred tax assets. Deferred tax assets consist of: Deferred tax assets Start-up/pre-opening expenses $ 97,811 Provision for loan losses 65,722 --------- Net deferred tax asset 163,533 Valuation allowance for deferred tax assets (163,533) --------- Net deferred tax asset after valuation allowance $ 0 =========
As a result of the valuation allowance, the Corporation's effective tax rate was reduced from the statutory rate of 34% to 0%. (Continued) S-13 25 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 7 - STOCK OPTION PLAN
1997 ---- Stock options outstanding Beginning 0 Granted 77,750 --------- Ending 77,750 ========= Minimum exercise price $ 10.00 Maximum exercise price 11.75 Average exercise price 10.75 Average remaining option term 9.8 years Estimated fair value of stock options granted: $ 340,863 Assumptions used: Risk-free interest rate 6.01% Expected option life 7 years Expected stock volatility 25% Expected dividends 0% Pro-forma (loss) per share, assuming SFAS 123 fair value method was used for stock options: Net loss $(448,029) Basic and diluted loss per share (0.30)
NOTE 8 - RELATED PARTIES Certain directors and executive officers of the Corporation, including their immediate families and companies in which they are principal owners, were loan customers of the Bank. At December 31, 1997, the Bank had approximately $2,147,000 in outstanding loans to directors and executive officers. Related party deposits totaled approximately $416,000 at year-end 1997. (Continued) S-14 26 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 9 - COMMITMENTS AND OFF-BALANCE-SHEET RISK Some financial instruments are used to meet customer financing needs and to reduce exposure to interest rate changes. These financial instruments include commitments to extend credit and standby letters of credit. These involve, to varying degrees, credit and interest-rate risk in excess of the amount reported in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment, and generally have fixed expiration dates. Standby letters of credit are conditional commitments to guarantee a customer's performance to a third party. Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit and standby letters of credit. Collateral or other security is normally not obtained for these financial instruments prior to their use, and many of the commitments are expected to expire without being used. A summary of the notional or contractual amounts of financial instruments with off-balance-sheet risk at year-end follows: Commitments to make loans $7,198,584 Commercial unused lines of credit 3,701,272 Consumer unused lines of credit 64,356 Commitments to make loans generally have termination dates of one year or less and may require a fee. Since many of the above commitments expire without being used, the above amounts do not necessarily represent future cash commitments. No losses are anticipated as a result of these transactions. The Bank leases the main office facility under an operating lease agreement. Total rental expense for the lease for 1997 was $37,463. Future minimum rentals under this lease as of December 31, 1997 are as follows: 1998 $149,850 1999 149,850 2000 149,850 2001 149,850 2002 149,850 (Continued) S-15 27 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS The Bank opened for operations on December 15, 1997. As there have been no significant changes in interest rates from December 15, 1997 to year end, the values shown on the balance sheet approximate market value at December 31, 1997. The interest rates offered by the Bank for its loan and deposit products stayed the same during that time period. Investment securities are disclosed at fair value in Note 2. While the estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that were the Bank to have disposed of such items at December 31, 1997, the estimated fair values would necessarily have been achieved at those dates, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1997 should not necessarily be considered to apply to subsequent dates. In addition, other assets and liabilities of the Bank that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items. NOTE 11 - REGULATORY MATTERS The Company and Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. (Continued) S-16 28 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 11 - REGULATORY MATTERS (Continued) The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. The minimum requirements are:
Capital to Risk- Weighted Assets ------------------ Tier 1 Capital Total Tier 1 to Average Assets -------- -------- ----------------- Well capitalized 10% 6% 5% Adequately capitalized 8 4 4 Undercapitalized 6 3 3
At year end, actual capital levels (in thousands) and minimum required levels for the Corporation and the Bank were:
Minimum Required to be Well Minimum Required Capitalized Under for Capital Prompt Corrective Actual Adequacy Purposes Action Regulations -------------- -------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio ------- ----- --------- --------- --------- --------- 1997 - ---- Total capital (to risk weighted assets) $13,595 78.1% $1,392 8.0% $1,740 10.0% Consolidated Bank 13,056 75.6 1,382 8.0 1,728 10.0 Tier 1 capital (to risk weighted assets) 13,402 77.0 696 4.0 1,044 6.0 Consolidated Bank 12,863 74.5 691 4.0 1,037 6.0 Tier 1 capital (to average assets) 13,402 69.7 769 4.0 961 5.0 Consolidated Bank 12,863 69.3 743 4.0 928 5.0
The Bank was categorized as well capitalized at year end 1997. (Continued) S-17 29 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 12 - MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS Following are condensed parent company only financial statements.
CONDENSED BALANCE SHEET 1997 ----------- ASSETS Cash and cash equivalents $ 536,824 Investment in subsidiary 12,862,806 Other assets 126,545 ----------- Total assets $13,526,175 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities $ 52,905 Shareholders' equity 13,473,270 ----------- Total liabilities and shareholders' equity $13,526,175 =========== CONDENSED STATEMENT OF INCOME Period from July 15, 1997 (date of inception) through December 31, 1997 ------------------- Income Other $ 32,781 ---------- Total income 32,781 Expenses Other operating expenses 303,289 ---------- LOSS BEFORE INCOME TAX AND EQUITY IN UNDISTRIBUTED NET LOSS OF SUBSIDIARIES (270,508) Federal income tax expense Equity in undistributed net loss of subsidiary (133,563) ---------- NET LOSS $ (404,071) ==========
(Continued) S-18 30 MERCANTILE BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE 12 - MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENT OF CASH FLOWS
Period from July 15, 1997 (date of inception) through December 31, 1997 ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (404,071) Adjustments to reconcile net loss to net cash from operating activities Equity in undistributed loss of subsidiary 133,563 Change in other assets (126,545) Change in other liabilities 52,905 ------------- Net cash from operating activities (344,148) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of 1,495,000 shares of common stock 13,880,972 Capital investment into Mercantile Bank of West Michigan (13,000,000) ------------- Net cash from financing activities 880,972 ------------- Net change in cash and cash equivalents 536,824 Cash and cash equivalents at beginning of period 0 ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 536,824 =============
S-19 31 SHAREHOLDER INFORMATION SEC Form 10-KSB Copies of the Corporation's annual report on Form 10-KSB, as filed with the Securities and Exchange Commission are available to shareholders without charge, upon written request. Please mail your request to Robert B. Kaminski, Senior Vice President and Secretary of the Corporation, at 216 North Division Avenue, Grand Rapids, Michigan 49503. Stock Information The common stock of Mercantile Bank Corporation is traded on the OTC Bulletin Board section of The Nasdaq Stock Market ("NASDAQ") under the ticker symbol MBWM. At December 31, 1997, there were approximately 50 record holders of the Corporation's common stock. The following table shows the high and low bid prices by quarter during the period from the date of the Corporation's public stock offering (October 23, 1997) through the end of the year. The quotations reflect bid prices as reported by NASDAQ, and do not include retail mark-up, mark-down or dealer commission. 1997 Bid Prices --------------- Cash Dividends Quarter High Low Declared ---------------------------------------------------- Fourth $11.75 $9.75 $ 0 ---------------------------------------------------- MARKET MAKERS At December 31, 1997, the following firms were registered with NASDAQ as market makers in Mercantile Bank Corporation common stock: Roney & Co. The Ohio Company One Griswold Street 155 East Broad Street Detroit, Michigan 48226 Columbus, Ohio 43215 S-20 32 STOCK REGISTRAR AND TRANSFER AGENT State Street Bank & Trust Company c/o Boston EquiServe P.O. Box 8200 Boston, MA 02266-8200 Shareholder Inquiries 1-800-426-5523 LEGAL COUNSEL Dickinson Wright PLLC 500 Woodward Avenue, Suite 4000 Detroit, Michigan 48226 and 200 Ottawa Avenue, N.W., Suite 900 Grand Rapids, Michigan 49503 INDEPENDENT AUDITORS Crowe, Chizek and Company LLP 55 Campau, Suite 400 Riverfront Plaza Building Grand Rapids, Michigan 49503 ADDITIONAL INFORMATION News media representatives and those seeking additional information about the Corporation should contact Robert B. Kaminski, Senior Vice President and Secretary of the Corporation, at (616) 242-7766, or by writing him at 216 North Division Avenue, Grand Rapids, Michigan 49503. ANNUAL MEETING This year's Annual Meeting will be held at 10:00 a.m., on Tuesday, April 21, 1998, at the Corporation's main office at 216 North Division Avenue, Grand Rapids, Michigan 49503. S-21 33 DIRECTORS AND EXECUTIVE OFFICERS Betty S. Burton, President and Chief Executive Officer of Wonderland Business Forms, Inc. Peter A. Cordes, President and Chief Executive Officer of GWI Engineering Inc. (industrial automation systems) C. John Gill, retired Chairman of the Board of Gill Industries (sheet metal stampings and assemblies) David M. Hecht, attorney with the law firm of Hecht & Lentz Gerald R. Johnson, Jr., Chairman of the Board of Directors and Chief Executive officer of Mercantile Bank Corporation and Mercantile Bank of West Michigan Susan K. Jones, owner of Susan K. Jones & Associates Direct Marketing and Advertising and Associate Professor of Marketing at Ferris State University Lawrence W. Larsen, Chief Executive Officer and President of Central Industrial Corporation (wholesale distributor of industrial supplies) Calvin D. Murdock, President of SF Supply (wholesale distributor of commercial and industrial electronic, electrical and automation parts, supplies, and services) Michael H. Price, President and Chief Operating Officer of Mercantile Bank Corporation and Mercantile Bank of West Michigan Dale J. Visser, Chairman of the Board of Visser Brothers Inc. (construction general contractor) Donald Williams, Sr., Dean of Minority Affairs and Director of the Multicultural Center of Grand Valley State University Robert M. Wynalda, retired Chief Executive Officer of Wynalda Litho Inc. (commercial printing company) _____________________________ Each of the above persons is a director of the Corporation and the Bank, and Messrs. Johnson and Price are also executive officers of each. S-22 EX-21 4 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE ISSUER
Name of State or Jurisdiction of Description Subsidiary Incorporation or Organization ----------- ---------- ----------------------------- Mercantile Bank of West Michigan State of Michigan Michigan banking corporation
EX-27 5 EXHIBIT 27
9 YEAR DEC-31-1997 DEC-31-1997 153,000 3,250,000 3,700,000 0 2,998,000 0 0 12,887,000 (193,000) 24,109,000 9,688,000 655,000 293,000 0 0 0 13,881,000 (404,000) 24,109,000 26,000 128,000 0 154,000 6,000 8,000 140,000 193,000 0 351,000 (404,000) (404,000) 0 0 (404,000) 0.27 0.27 13.9 0 0 0 0 0 0 0 (193,300) 0 0 (193,000)
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