<PAGE> 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
---- ----
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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.
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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
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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.
<TABLE>
<CAPTION>
0 - 1 1 - 5 After 5
Year Years Years Total
---- ----- ----- -----
<S> <C> <C> <C> <C>
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
======== ======== ========= =======
</TABLE>
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
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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:
<TABLE>
<S> <C>
LOAN PORTFOLIO
Commercial $ 12,701,000
Consumer 186,000
------------
Total $ 12,887,000
============
</TABLE>
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:
<TABLE>
<CAPTION>
Period from July 15, 1997 (inception)
through December 31, 1997
-------------------------------
(in thousands)
<S> <C>
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%
</TABLE>
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.
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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:
<TABLE>
<CAPTION>
Period from July 15, 1997 (inception)
to December 31, 1997
------------------------------------
<S> <C>
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%
</TABLE>
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
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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.
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(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
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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
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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
<PAGE> 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
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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
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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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Amount Percent of Class
Beneficially Beneficially
Name of Beneficial Owner Owned (1) Owned (4)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
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%
</TABLE>
2
<PAGE> 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name, Age, and Position with Has Served As Year When Term As a
the Corporation and the Bank Director Since Director Expires
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Name and
Principal All Other
Position Year Salary Bonus Options Compensation
- ------------ ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Gerald R. Johnson, Jr., 1997 $83,654 0 40,000 0
Chairman of the Board and
Chief Executive Officer
</TABLE>
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
<PAGE> 9
<TABLE>
<CAPTION>
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
---- --------------- ----------- ------------- -------
<S> <C> <C> <C> <C>
Gerald R. Johnson, Jr., 40,000 51% $10.00 July 21, 2007
Chairman of the Board and
Chief Executive Officer
</TABLE>
- ----------------
(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:
<TABLE>
<CAPTION>
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
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gerald R. Johnson, Jr., None N/A 10,000/30,000 $5,000/$15,000
Chairman of the Board
and Chief Executive
</TABLE>
- -----------------------------
(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
<PAGE> 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
<PAGE> 11
MERCANTILE BANK
CORPORATION
1997 ANNUAL REPORT
DECEMBER 31, 1997
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 16
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
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
===========
</TABLE>
See accompanying notes to consolidated financial statements.
S-5
<PAGE> 17
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Period from July 15, 1997 (date of inception) through December 31, 1997
<TABLE>
<S> <C>
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
==========
</TABLE>
See accompanying notes to consolidated financial statements.
S-6
<PAGE> 18
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Period from July 15, 1997 (date of inception) through December 31, 1997
<TABLE>
<CAPTION>
Net Unrealized
(Loss) on
Securities Total
Common Retained Available Shareholders'
Stock Earnings for Sale Equity
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
=========== ========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
S-7
<PAGE> 19
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from July 15, 1997 (date of inception) through December 31, 1997
<TABLE>
<S> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
S-8
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
---------- ---------- ---------- ----------
1997
----
<S> <C> <C> <C> <C>
U.S. Treasury securities $3,001,131 $ 0 $ (3,631) $2,997,500
========== ========== ========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Values
---------- ----------
<S> <C> <C>
Due in one year or less $3,001,131 $2,997,500
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
1997
----
<S> <C>
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
===========
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT - NET
Year-end premises and equipment are as follows:
<TABLE>
<CAPTION>
Carrying
Value
----------
<S> <C>
1997
----
Leasehold improvements $ 545,401
Furniture and equipment 408,581
----------
$ 953,982
==========
</TABLE>
(Continued)
S-12
<PAGE> 24
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 5 - DEPOSITS
Deposits at year-end are summarized as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
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
==========
</TABLE>
At year-end 1997, maturities of deposits with a term of over one year were as
follows, for the next five years:
<TABLE>
<S> <C>
1998 $57,862
1999 120,163
--------
$178,025
========
</TABLE>
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:
<TABLE>
<S> <C>
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
=========
</TABLE>
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
<PAGE> 25
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 7 - STOCK OPTION PLAN
<TABLE>
<CAPTION>
1997
----
<S> <C>
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)
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Capital to Risk-
Weighted Assets
------------------ Tier 1 Capital
Total Tier 1 to Average Assets
-------- -------- -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
</TABLE>
At year end, actual capital levels (in thousands) and minimum required levels
for the Corporation and the Bank were:
<TABLE>
<CAPTION>
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
- ----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The Bank was categorized as well capitalized at year end 1997.
(Continued)
S-17
<PAGE> 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.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
1997
-----------
<S> <C>
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
===========
<CAPTION>
CONDENSED STATEMENT OF INCOME
Period from
July 15, 1997
(date of inception)
through
December 31,
1997
-------------------
<S> <C>
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)
==========
</TABLE>
(Continued)
S-18
<PAGE> 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
<TABLE>
<CAPTION>
Period from
July 15, 1997
(date of inception)
through
December 31,
1997
-------------------
<S> <C>
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
=============
</TABLE>
S-19
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE ISSUER
<TABLE>
<CAPTION>
Name of State or Jurisdiction of Description
Subsidiary Incorporation or Organization -----------
---------- -----------------------------
<S> <C> <C>
Mercantile Bank of West Michigan State of Michigan Michigan banking corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 153,000
<INT-BEARING-DEPOSITS> 3,250,000
<FED-FUNDS-SOLD> 3,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,998,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 12,887,000
<ALLOWANCE> (193,000)
<TOTAL-ASSETS> 24,109,000
<DEPOSITS> 9,688,000
<SHORT-TERM> 655,000
<LIABILITIES-OTHER> 293,000
<LONG-TERM> 0
0
0
<COMMON> 13,881,000
<OTHER-SE> (404,000)
<TOTAL-LIABILITIES-AND-EQUITY> 24,109,000
<INTEREST-LOAN> 26,000
<INTEREST-INVEST> 128,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 154,000
<INTEREST-DEPOSIT> 6,000
<INTEREST-EXPENSE> 8,000
<INTEREST-INCOME-NET> 140,000
<LOAN-LOSSES> 193,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 351,000
<INCOME-PRETAX> (404,000)
<INCOME-PRE-EXTRAORDINARY> (404,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (404,000)
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 13.9
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (193,300)
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (193,000)
</TABLE>
