0001437749-21-005133.txt : 20210305 0001437749-21-005133.hdr.sgml : 20210305 20210305151332 ACCESSION NUMBER: 0001437749-21-005133 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 142 CONFORMED PERIOD OF REPORT: 20201231 FILED AS OF DATE: 20210305 DATE AS OF CHANGE: 20210305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANK CORP CENTRAL INDEX KEY: 0001042729 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 383360865 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26719 FILM NUMBER: 21718172 BUSINESS ADDRESS: STREET 1: 310 LEONARD STREET NW CITY: GRAND RAPIDS STATE: MI ZIP: 49504 BUSINESS PHONE: 616 406-3000 MAIL ADDRESS: STREET 1: 310 LEONARD STREET NW CITY: GRAND RAPIDS STATE: MI ZIP: 49504 10-K 1 mbwm20201231_10k.htm FORM 10-K mbwm20201231_10k.htm
0001042729 MERCANTILE BANK CORPORATION false --12-31 FY 2020 0 0 1,000,000 1,000,000 0 0 0 0 40,000,000 40,000,000 16,330,476 16,330,476 16,425,136 16,425,136 1,579 37,450 11,481 12,404 199,905 1.68 1,507 21,503 8,200 11,905 233,300 1.06 2,264 35,479 753 17,716 236,393 1.12 5 10 1.3 0 0 1.3 0.1 0.1 0 17.5 1 21 21 0 0 3 2 7 1 5 10 0 0 22.00 27.00 36.00 0 5 3 7 0 0.1 0.1 0 0 5 4 218 199 127 135 135 0.28 0.28 0.28 0.28 0.28 0.28 0.29 28.25 Excludes $365 million in loans originated under the Paycheck Protection Program. For December 31, 2020, includes $365 million in loans originated under the Paycheck Protection Program. Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program. See Note 17 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities. It is not practical to determine the fair value of FHLBI stock due to transferability restrictions; therefore, fair value is estimated at carrying amount. 00010427292020-01-012020-12-31 iso4217:USD 00010427292020-06-30 xbrli:shares 00010427292021-02-26 thunderdome:item 00010427292020-12-31 00010427292019-12-31 iso4217:USDxbrli:shares 00010427292019-01-012019-12-31 00010427292018-01-012018-12-31 0001042729us-gaap:DepositAccountMember2020-01-012020-12-31 0001042729us-gaap:DepositAccountMember2019-01-012019-12-31 0001042729us-gaap:DepositAccountMember2018-01-012018-12-31 0001042729us-gaap:CreditAndDebitCardMember2020-01-012020-12-31 0001042729us-gaap:CreditAndDebitCardMember2019-01-012019-12-31 0001042729us-gaap:CreditAndDebitCardMember2018-01-012018-12-31 0001042729us-gaap:PreferredStockMember2017-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2017-12-31 0001042729us-gaap:RetainedEarningsMember2017-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-31 00010427292017-12-31 0001042729srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2017-12-31 0001042729srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-31 0001042729srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2017-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2018-01-012018-12-31 0001042729us-gaap:RetainedEarningsMember2018-01-012018-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-31 0001042729us-gaap:PreferredStockMember2018-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2018-12-31 0001042729us-gaap:RetainedEarningsMember2018-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-31 00010427292018-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2019-01-012019-12-31 0001042729us-gaap:RetainedEarningsMember2019-01-012019-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-31 0001042729us-gaap:PreferredStockMember2019-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2019-12-31 0001042729us-gaap:RetainedEarningsMember2019-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2020-01-012020-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-31 0001042729us-gaap:RetainedEarningsMember2020-01-012020-12-31 0001042729us-gaap:PreferredStockMember2020-12-31 0001042729us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2020-12-31 0001042729us-gaap:RetainedEarningsMember2020-12-31 0001042729us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 xbrli:pure 0001042729mbwm:FirstbankCorporationMember2014-06-01 0001042729mbwm:SBACARESActPaycheckProtectionProgramMember2020-12-31 utr:D 0001042729us-gaap:CommercialPortfolioSegmentMember2020-04-012020-04-30 0001042729us-gaap:CommercialPortfolioSegmentMember2020-04-30 0001042729mbwm:RetailPortfolioSegmentMember2020-04-012020-04-30 0001042729us-gaap:CommercialPortfolioSegmentMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMember2020-12-31 00010427292020-04-30 0001042729mbwm:MortgageLoansMember2020-12-31 0001042729mbwm:MortgageLoansMember2019-12-31 utr:Y 0001042729us-gaap:CoreDepositsMember2020-01-012020-09-30 0001042729mbwm:SbaCaresActPaycheckProtectionProgramSecondRoundMemberus-gaap:SubsequentEventMember2021-02-26 0001042729mbwm:SBACARESActPaycheckProtectionProgramMemberus-gaap:SubsequentEventMember2021-02-26 utr:sqft 0001042729us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembermbwm:BankingOfficeInHastingsMichiganMembersrt:ScenarioForecastMember2021-03-31 0001042729us-gaap:AccountingStandardsUpdate201602Member2019-01-01 0001042729us-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-31 0001042729us-gaap:MortgageBackedSecuritiesMember2020-12-31 0001042729mbwm:MunicipalGeneralObligationBondsMember2020-12-31 0001042729mbwm:MunicipalRevenueBondsMember2020-12-31 0001042729mbwm:OtherDebtAndEquitySecuritiesMember2020-12-31 0001042729us-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-31 0001042729us-gaap:MortgageBackedSecuritiesMember2019-12-31 0001042729mbwm:MunicipalGeneralObligationBondsMember2019-12-31 0001042729mbwm:MunicipalRevenueBondsMember2019-12-31 0001042729mbwm:OtherDebtAndEquitySecuritiesMember2019-12-31 0001042729mbwm:StateOfMichiganAndAllItsPoliticalSubdivisionsMember2020-12-31 0001042729mbwm:StateOfMichiganAndAllItsPoliticalSubdivisionsMember2019-12-31 0001042729mbwm:AllOtherStatesAndTheirPoliticalSubdivisionsMember2020-12-31 0001042729mbwm:AllOtherStatesAndTheirPoliticalSubdivisionsMember2019-12-31 0001042729mbwm:UsGovernmentAgencyDebtObligationsAndMortgageBackedSecuritiesMember2020-12-31 0001042729mbwm:UsGovernmentAgencyDebtObligationsAndMortgageBackedSecuritiesMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2020-01-012020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2020-01-012020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2020-01-012020-12-31 0001042729mbwm:RetailPortfolioSegmentMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMember2020-01-012020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:SBACARESActPaycheckProtectionProgramMember2020-12-31 0001042729mbwm:CommercialRealEstateLoansToLessorsOfNonResidentialBuildingsMember2020-12-31 0001042729mbwm:CommercialRealEstateLoansToLessorsOfNonResidentialBuildingsMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMemberus-gaap:CommercialPortfolioSegmentMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2019-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMember2020-12-31 0001042729us-gaap:NonperformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:FinancingReceivables30To59DaysPastDueMember2020-12-31 0001042729us-gaap:FinancingReceivables60To89DaysPastDueMember2020-12-31 0001042729us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729mbwm:RetailPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31 0001042729us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-31 0001042729us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2019-01-012019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2019-01-012019-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2019-01-012019-12-31 0001042729mbwm:RetailPortfolioSegmentMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades1To4Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades1To4Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades1To4Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades1To4Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades1To4Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades5To7Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades5To7Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades5To7Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades5To7Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades5To7Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades8To9Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades8To9Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades8To9Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades8To9Member2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades8To9Member2020-12-31 0001042729us-gaap:PerformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2020-12-31 0001042729us-gaap:PerformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades1To4Membermbwm:SBACARESActPaycheckProtectionProgramMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades1To4Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades1To4Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades1To4Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades1To4Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades1To4Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades5To7Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades5To7Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades5To7Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades5To7Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades5To7Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMembermbwm:Grades8To9Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMembermbwm:Grades8To9Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMembermbwm:Grades8To9Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMembermbwm:Grades8To9Member2019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMembermbwm:Grades8To9Member2019-12-31 0001042729us-gaap:PerformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2019-12-31 0001042729us-gaap:PerformingFinancingReceivableMembermbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2019-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2019-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2020-01-012020-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2020-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2018-12-31 0001042729mbwm:RetailPortfolioSegmentMember2018-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2018-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2019-01-012019-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2017-12-31 0001042729mbwm:RetailPortfolioSegmentMember2017-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMember2018-01-012018-12-31 0001042729mbwm:RetailPortfolioSegmentMember2018-01-012018-12-31 0001042729us-gaap:UnallocatedFinancingReceivablesMember2018-01-012018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2018-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2018-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2017-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:CommercialAndIndustrialMember2018-01-012018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:VacantLandAndLandDevelopmentAndResidentialConstructionLoanMember2018-01-012018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateOwnerOccupiedLoanMember2018-01-012018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateNonOwnerOccupiedLoanMember2018-01-012018-12-31 0001042729us-gaap:CommercialPortfolioSegmentMembermbwm:RealEstateMultiFamilyAndResidentialRentalLoanMember2018-01-012018-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2017-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2017-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:HomeEquityAndOtherMember2018-01-012018-12-31 0001042729mbwm:RetailPortfolioSegmentMembermbwm:OneToFourFamilyMortgagesMember2018-01-012018-12-31 0001042729us-gaap:LandAndLandImprovementsMember2020-12-31 0001042729us-gaap:LandAndLandImprovementsMember2019-12-31 0001042729us-gaap:BuildingMember2020-12-31 0001042729us-gaap:BuildingMember2019-12-31 0001042729us-gaap:FurnitureAndFixturesMember2020-12-31 0001042729us-gaap:FurnitureAndFixturesMember2019-12-31 0001042729mbwm:FederalHomeLoanMortgageCorporationMember2020-12-31 0001042729mbwm:FederalHomeLoanMortgageCorporationMember2019-12-31 0001042729mbwm:FederaLhomeLoanBankMember2020-12-31 0001042729mbwm:FederaLhomeLoanBankMember2019-12-31 0001042729us-gaap:SecuritiesSoldUnderAgreementsToRepurchaseMember2020-12-31 0001042729us-gaap:SecuritiesSoldUnderAgreementsToRepurchaseMember2019-12-31 0001042729us-gaap:SecuritiesSoldUnderAgreementsToRepurchaseMember2020-01-012020-12-31 0001042729us-gaap:SecuritiesSoldUnderAgreementsToRepurchaseMember2019-01-012019-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMember2020-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:MinimumMember2020-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:MaximumMember2020-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:WeightedAverageMember2020-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMember2019-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:MinimumMember2019-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:MaximumMember2019-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembersrt:WeightedAverageMember2019-12-31 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromAugust2020ToOctober2021Member2020-06-012020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromAugust2020ToOctober2021Membersrt:MinimumMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromAugust2020ToOctober2021Membersrt:MaximumMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromAugust2020ToOctober2021Membersrt:WeightedAverageMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromJune2024ToJune2027Member2020-06-012020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromJune2024ToJune2027Membersrt:MinimumMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromJune2024ToJune2027Membersrt:MaximumMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromJune2024ToJune2027Membersrt:WeightedAverageMember2020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMember2020-06-012020-06-30 0001042729srt:FederalHomeLoanBankOfIndianapolisMembermbwm:FederalHomeLoanBankAdvancesWithMaturitiesFromJune2024ToJune2027Member2020-06-30 0001042729mbwm:FirstbankCorporationMember2019-12-31 0001042729mbwm:FirstbankCorporationMember2020-12-31 0001042729us-gaap:RestrictedStockMember2020-01-012020-12-31 0001042729us-gaap:EmployeeStockOptionMember2014-01-012016-12-31 0001042729mbwm:FirstBankEmployeesMember2020-12-31 0001042729srt:MinimumMembermbwm:FirstBankEmployeesMember2020-01-012020-12-31 0001042729srt:MaximumMembermbwm:FirstBankEmployeesMember2020-01-012020-12-31 0001042729mbwm:FirstBankEmployeesMembermbwm:GrantPerAnnumStartingOneYearFromDateOfGrantMember2019-01-012019-12-31 0001042729mbwm:FirstBankEmployeesMember2020-01-012020-12-31 0001042729mbwm:FirstbankCorporationMember2014-06-012014-06-01 0001042729mbwm:FirstbankCorporationMember2015-01-012015-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2019-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2018-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2017-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2020-01-012020-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2019-01-012019-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2018-01-012018-12-31 0001042729us-gaap:RestrictedStockMembermbwm:MercantilePlansMember2020-12-31 0001042729us-gaap:PerformanceSharesMembersrt:ExecutiveOfficerMember2020-01-012020-12-31 0001042729us-gaap:PerformanceSharesMembersrt:ExecutiveOfficerMember2019-01-012019-12-31 0001042729us-gaap:PerformanceSharesMembersrt:ExecutiveOfficerMember2018-01-012018-12-31 0001042729mbwm:The2019AwardsMemberus-gaap:PerformanceSharesMembersrt:ExecutiveOfficerMember2020-01-012020-12-31 0001042729mbwm:The2018AwardsMemberus-gaap:PerformanceSharesMembersrt:ExecutiveOfficerMember2020-01-012020-12-31 0001042729mbwm:MercantilePlansMember2019-12-31 0001042729mbwm:MercantilePlansMember2018-12-31 0001042729mbwm:MercantilePlansMember2017-12-31 0001042729mbwm:MercantilePlansMember2020-01-012020-12-31 0001042729mbwm:MercantilePlansMember2019-01-012019-12-31 0001042729mbwm:MercantilePlansMember2018-01-012018-12-31 0001042729mbwm:MercantilePlansMember2020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange1Member2020-01-012020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange1Member2020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange2Member2020-01-012020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange2Member2020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange3Member2020-01-012020-12-31 0001042729mbwm:MercantilePlansMembermbwm:ExercisePriceRange3Member2020-12-31 0001042729srt:DirectorMember2017-05-252017-05-25 0001042729srt:DirectorMember2017-06-012018-05-31 0001042729srt:DirectorMember2018-05-242018-05-24 0001042729srt:DirectorMember2018-06-012019-05-31 0001042729mbwm:BankBoardMembersMember2018-10-252018-10-25 0001042729mbwm:BankBoardMembersMember2018-10-012019-05-31 0001042729srt:DirectorMember2019-05-232019-05-23 0001042729srt:DirectorMember2019-06-012020-05-31 0001042729srt:DirectorMember2020-06-012020-06-01 0001042729srt:ScenarioForecastMembersrt:DirectorMember2020-06-012021-05-31 0001042729mbwm:BankBoardMembersMember2020-08-272020-08-27 0001042729srt:ScenarioForecastMembermbwm:BankBoardMembersMember2020-09-012021-05-31 0001042729mbwm:DirectorsAndExecutiveOfficersMember2020-12-31 0001042729mbwm:DirectorsAndExecutiveOfficersMember2019-12-31 0001042729mbwm:DirectorsAndExecutiveOfficersMember2018-12-31 0001042729mbwm:DirectorsAndExecutiveOfficersMember2020-01-012020-12-31 0001042729mbwm:DirectorsAndExecutiveOfficersMember2019-01-012019-12-31 0001042729mbwm:SBACARESActPaycheckProtectionProgramMembermbwm:DirectorsMember2020-12-31 0001042729us-gaap:UnusedLinesOfCreditMemberus-gaap:CommercialPortfolioSegmentMember2020-12-31 0001042729us-gaap:UnusedLinesOfCreditMemberus-gaap:CommercialPortfolioSegmentMember2019-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:OneToFourFamilyMortgagesMember2020-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:OneToFourFamilyMortgagesMember2019-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:ConsumerCreditCardMember2020-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:ConsumerCreditCardMember2019-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:ConsumerOtherFinancingReceivable1Member2020-12-31 0001042729us-gaap:UnusedLinesOfCreditMembermbwm:ConsumerOtherFinancingReceivable1Member2019-12-31 0001042729us-gaap:LoanOriginationCommitmentsMember2020-12-31 0001042729us-gaap:LoanOriginationCommitmentsMember2019-12-31 0001042729us-gaap:StandbyLettersOfCreditMember2020-12-31 0001042729us-gaap:StandbyLettersOfCreditMember2019-12-31 0001042729srt:MinimumMember2020-01-012020-12-31 0001042729srt:MaximumMember2020-01-012020-12-31 0001042729srt:MinimumMember2020-12-31 0001042729srt:MaximumMember2020-12-31 0001042729us-gaap:StandbyLettersOfCreditMember2020-12-31 0001042729us-gaap:StandbyLettersOfCreditMember2019-12-31 00010427292014-01-012014-12-31 0001042729us-gaap:OtherLiabilitiesMember2020-12-31 0001042729us-gaap:OtherLiabilitiesMember2019-12-31 0001042729mbwm:StockPurchasePlanMember2020-12-31 0001042729us-gaap:InterestRateSwapMember2020-12-31 0001042729us-gaap:OtherAssetsMemberus-gaap:InterestRateSwapMember2020-12-31 0001042729us-gaap:OtherLiabilitiesMemberus-gaap:InterestRateSwapMember2020-12-31 0001042729us-gaap:InterestRateSwapMember2020-01-012020-12-31 0001042729us-gaap:InterestRateSwapMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-31 0001042729us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-31 0001042729us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-31 0001042729us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-31 0001042729us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-31 0001042729us-gaap:AvailableforsaleSecuritiesMember2020-12-31 0001042729us-gaap:AvailableforsaleSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Member2020-12-31 0001042729us-gaap:FairValueInputsLevel1Member2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Membermbwm:MunicipalGeneralObligationBondsMember2020-01-012020-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalGeneralObligationBondsMember2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:MunicipalRevenueBondsMember2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembermbwm:OtherDebtAndEquitySecuritiesMember2019-12-31 0001042729us-gaap:FairValueMeasurementsRecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Membermbwm:MunicipalGeneralObligationBondsMember2019-01-012019-12-31 0001042729us-gaap:FairValueMeasurementsNonrecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-31 0001042729us-gaap:FairValueMeasurementsNonrecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-31 0001042729us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-12-31 0001042729us-gaap:CommercialRealEstateMembermbwm:RealEstateDependentLoansAndForeclosedAssetsMembersrt:MinimumMember2020-01-012020-12-31 0001042729us-gaap:CommercialRealEstateMembermbwm:RealEstateDependentLoansAndForeclosedAssetsMembersrt:MaximumMember2020-01-012020-12-31 0001042729us-gaap:ResidentialRealEstateMembermbwm:RealEstateDependentLoansAndForeclosedAssetsMembersrt:MinimumMember2020-01-012020-12-31 0001042729us-gaap:ResidentialRealEstateMembermbwm:RealEstateDependentLoansAndForeclosedAssetsMembersrt:MaximumMember2020-01-012020-12-31 0001042729mbwm:RealEstateDependentLoansAndForeclosedAssetsEstimatedSellingCostsMember2020-01-012020-12-31 0001042729us-gaap:EmployeeStockOptionMember2020-01-012020-12-31 0001042729us-gaap:EmployeeStockOptionMember2019-01-012019-12-31 0001042729us-gaap:EmployeeStockOptionMember2018-01-012018-12-31 00010427292014-06-01 00010427292014-06-012014-06-01 0001042729mbwm:FundMembermbwm:MercantileBankCapitalTrustIMember2016-01-26 0001042729mbwm:MercantileBankCapitalTrustIMember2016-01-26 0001042729mbwm:MercantileBankCapitalTrustIMember2016-01-262016-01-26 0001042729mbwm:MercantileBankCapitalTrustIMember2020-12-31 0001042729mbwm:MercantileBankCapitalTrustIMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-31 0001042729mbwm:FirstbankCapitalTrustIMember2020-12-31 0001042729mbwm:FirstbankCapitalTrustIMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-31 0001042729mbwm:FirstbankCapitalTrustIIMember2020-12-31 0001042729mbwm:FirstbankCapitalTrustIIMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-31 0001042729mbwm:FirstbankCapitalTrustIIIMember2020-12-31 0001042729mbwm:FirstbankCapitalTrustIIIMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-31 0001042729mbwm:FirstbankCapitalTrustIVMember2020-12-31 0001042729mbwm:FirstbankCapitalTrustIVMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-12-31 0001042729us-gaap:ConsolidatedEntitiesMember2020-12-31 0001042729mbwm:BankMember2020-12-31 0001042729us-gaap:ConsolidatedEntitiesMember2019-12-31 0001042729mbwm:BankMember2019-12-31 00010427292020-01-162020-01-16 00010427292020-03-182020-03-18 00010427292020-04-162020-04-16 00010427292020-06-172020-06-17 00010427292020-07-162020-07-16 00010427292020-09-162020-09-16 00010427292020-10-152020-10-15 00010427292020-12-162020-12-16 0001042729us-gaap:SubsequentEventMember2021-01-142021-01-14 0001042729srt:ScenarioForecastMember2021-03-172021-03-17 00010427292019-05-31 00010427292020-01-012020-03-31 00010427292020-10-012020-12-31 00010427292009-12-31 00010427292020-04-012020-06-30 00010427292020-07-012020-09-30 00010427292019-01-012019-03-31 00010427292019-04-012019-06-30 00010427292019-07-012019-09-30 00010427292019-10-012019-12-31 0001042729srt:ParentCompanyMember2020-12-31 0001042729srt:ParentCompanyMember2019-12-31 0001042729srt:ParentCompanyMember2020-01-012020-12-31 0001042729srt:ParentCompanyMember2019-01-012019-12-31 0001042729srt:ParentCompanyMember2018-01-012018-12-31 0001042729srt:ParentCompanyMember2018-12-31 0001042729srt:ParentCompanyMember2017-12-31
 

Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

 

       Commission file number 000-26719

 

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

 Michigan

 

38-3360865

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

310 Leonard Street NW, Grand Rapids, Michigan

 

49504

(Address of principal executive offices)

 

(Zip Code)

 (616) 406-3000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

MBWM

The Nasdaq Stock Market LLC

           

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company (as defined in Rule 12b-2 of the Exchange Act).        

 Large accelerated filer ☐Accelerated filerEmerging growth company
 Non-accelerated filer ☐Smaller reporting company  

                                           

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 USC.7262(b)) by the registered public accounting firm that prepared or issued its audit report.   Yes ☒ No

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

The aggregate value of the common equity held by non-affiliates (persons other than directors and executive officers) of the registrant, computed by reference to the closing price of the common stock as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $356 million. As of February 26, 2021, there were issued and outstanding 16,258,947 shares of the registrant’s common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Company’s proxy statement for the Annual Meeting of Shareholders to be held May 27, 2021 are incorporated by reference into Part III of this report. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020.

 

 

 
 

PART I

 

Item 1.

Business.

 

The Company

 

Mercantile Bank Corporation is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). Unless the text clearly suggests otherwise, references to “us,” “we,” “our,” or “the company” include Mercantile Bank Corporation and its wholly-owned subsidiaries. As a bank holding company, we are subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). We were organized on July 15, 1997, under the laws of the State of Michigan, primarily for the purpose of holding all of the stock of Mercantile Bank of Michigan (“our bank”), and of such other subsidiaries as we may acquire or establish. Our bank commenced business on December 15, 1997. During the third quarter of 2013, we filed an election to become a financial holding company, which election became effective April 14, 2014.

 

Mercantile Insurance Center, Inc. (“our insurance company”), a subsidiary of our bank, commenced operations during 2002 to offer insurance products. Mercantile Bank Real Estate Co., L.L.C., (“our real estate company”), a subsidiary of our bank, was organized on July 21, 2003, principally to develop, construct and own our facility in downtown Grand Rapids which serves as our bank’s main office and Mercantile Bank Corporation’s headquarters.

 

Our expenses have generally been paid using cash dividends from our bank. Our principal source of future operating funds is expected to be dividends from our bank.

 

Our Bank

 

Our bank is a state banking company that operates under the laws of the State of Michigan, pursuant to a charter issued by the Michigan Department of Insurance and Financial Services. Our bank’s deposits are insured to the maximum extent permitted by law by the Federal Deposit Insurance Corporation (“FDIC”). Our bank, through its 44 office locations, provides commercial banking services primarily to small- to medium-sized businesses and retail banking services. Our bank’s main office is located in Grand Rapids, and our operations are centered around the West and Central portions of Michigan. We also have a banking office located in the metropolitan Detroit, Michigan area, and during 2020 we opened residential mortgage loan production offices in Midland, Michigan and in the Cincinnati, Ohio metropolitan area. As part of our bank’s branch rationalization efforts, we recently announced that our bank and Lake Trust Credit Union have entered into an agreement for the sale of our banking office located in Hastings, Michigan, with the sale expected to be consummated by March 31, 2021. Further, in late 2020 we closed banking offices located in the Lakeview, Alma and Ionia downtown areas, consolidating the banking services with nearby banking office locations.

 

Our bank makes secured and unsecured commercial, construction, mortgage and consumer loans, and accepts checking, savings and time deposits. Our bank owns 27 automated teller machines ("ATM") and 13 video banking machines at a majority of our office locations that participate in the ACCEL/EXCHANGE and PLUS regional network systems, as well as other ATM networks throughout the country. Our bank also enables customers to conduct certain loan and deposit transactions by personal computer and through mobile applications. Courier service is provided to certain commercial customers, and safe deposit facilities are available at a vast majority of our office locations. Our bank does not have trust powers.

 

Our Insurance Company

 

Our insurance company acquired an existing shelf insurance agency effective April 15, 2002. An Agency and Institution Agreement was entered into among our insurance company, our bank and Hub International for the purpose of providing programs of mass marketed personal lines of insurance. Insurance product offerings include private passenger automobile, homeowners, personal inland marine, boat owners, recreational vehicle, dwelling fire, umbrella policies, small business and life insurance products, all of which are provided by and written through companies that have appointed Hub International as their agent. To date, we have not provided the insurance products noted above and currently have no plans to do so.

 


 

 

Our Real Estate Company

 

Our real estate company was organized on July 21, 2003, principally to develop, construct and own our facility in downtown Grand Rapids that serves as our bank’s main office and Mercantile Bank Corporation’s headquarters. This facility was placed into service during the second quarter of 2005. The facility was transferred to our bank and our real estate company was dissolved on December 18, 2020. Our real estate company was 99% owned by our bank and 1% owned by our insurance company.

 

Our Trusts

 

We have five business trusts that are wholly-owned subsidiaries of Mercantile Bank Corporation. Each of the trusts was formed to issue preferred securities that were sold in private sales, as well as selling common securities to Mercantile Bank Corporation. The proceeds from the preferred and common securities sales were used by the trusts to purchase floating rate notes issued by Mercantile Bank Corporation. The rates of interest, interest payment dates, call features and maturity dates of each floating rate note are identical to its respective preferred securities. The net proceeds from the issuance of the floating rate notes were used for a variety of purposes, including contributions to our bank as capital to provide support for asset growth and the funding of stock repurchase programs and certain acquisitions. The only significant assets of our trusts are the floating rate notes, and the only significant liabilities of our trusts are the preferred securities. The floating rate notes are categorized on our Consolidated Balance Sheets as subordinated debentures, and the interest expense is recorded on our Consolidated Statements of Income under interest expense on other borrowings.

 

Effect of Government Monetary Policies

 

Our earnings 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, maintain or encourage employment, and mitigate economic recessions. 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. Our bank maintains reserves directly with the Federal Reserve Bank of Chicago to the extent required by law. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

 

Regulation and Supervision

 

Banks and bank holding companies, among other financial institutions, are regulated under federal and state law. These include, among others, minimum capital requirements, state usury laws, state laws relating to fiduciaries, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment Act, the Real Estate Settlement Procedures Act, the USA PATRIOT Act, the FACT Act, the Gramm-Leach-Bliley Act, the Sarbanes Oxley Act, the Bank Secrecy Act, electronic funds transfer laws, redlining laws, predatory lending laws, antitrust laws, environmental laws, money laundering laws and privacy laws. Our growth and earnings performance may be impacted by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those regulatory authorities include, but are not limited to, the Federal Reserve Board, the FDIC, the Michigan Department of Insurance and Financial Services, the Internal Revenue Service and state taxing authorities. The effect of such statutes, regulations and policies, and any changes thereto, can be significant and cannot necessarily be predicted.

 

As a registered bank holding company under the Bank Holding Company Act, we are required to file an annual report with the Federal Reserve Board and such additional information as the Federal Reserve Board may require. We are also subject to examination by the Federal Reserve Board.

 


 

 

The Bank Holding Company Act limits the activities of bank holding companies to banking and the management of banking organizations, and to certain non-banking activities. The permitted non-banking activities include those limited activities that the Federal Reserve Board found, by order or regulation as of the day prior to enactment of the Gramm-Leach-Bliley Act, to be so closely related to banking as to be a proper incident to banking. These permitted non-banking activities include, among other things: operating a mortgage company, finance 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 providing discount securities brokerage services for customers. Neither we nor any of our subsidiaries engage in any of the non-banking activities listed above.

 

On April 14, 2014, our election to become a financial holding company, as permitted by the Bank Holding Company Act, as amended by Title I of the Gramm-Leach-Bliley Act, was accepted by the Federal Reserve Board. In order to continue as a financial holding company, we and our bank must satisfy statutory requirements regarding capitalization, management and compliance with the Community Reinvestment Act. As a financial holding company, we are permitted to engage in a broader range of activities under the Bank Holding Company Act than are permitted to bank holding companies. Those expanded activities include any activity which the Federal Reserve Board (in certain instances in consultation with the Department of the Treasury) determines, by order or by regulation, to be financial in nature or incidental to such financial activity, or to be complementary to a financial activity, and not to pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. Such expanded activities include, among others: insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death, or issuing annuities, and acting as principal, agent or broker for such purposes; providing financial, investment or economic advisory services, including advising a mutual fund; and underwriting, dealing in, or making a market in securities. While our insurance company is permitted to engage in the insurance agency activities described above by virtue of our financial holding company status, neither we nor any of our subsidiaries currently engage in the expanded activities.

 

Our bank is subject to restrictions imposed by federal and state laws and regulations. Among other things, these restrictions apply to any extension of credit to us or to our other subsidiaries, to securities borrowing or lending, derivatives, and repurchase transactions with us or our other subsidiaries, to investments in stock or other securities that we issue, to the taking of such stock or securities as collateral for loans to any borrower, and to acquisitions of assets or services from, and sales of certain types of assets to, us or our other subsidiaries. Michigan banking laws place restrictions on various aspects of banking, including branching, payment of dividends, loan interest rates and capital and surplus requirements. Federal law restricts our ability to borrow from our bank by limiting the aggregate amount we may borrow and by requiring that all loans to us be secured in designated amounts by specified forms of collateral.

 

With respect to the acquisition of banking organizations, we are generally required to obtain the prior approval of the Federal Reserve Board before we can acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank or bank holding company, if, after the acquisition, we would own or control more than 5% of the voting shares of the bank or bank holding company. Acquisitions of banking organizations across state lines are subject to restrictions imposed by federal and state laws and regulations.

 

The scope of regulations and supervision of various aspects of our business have expanded as a result of the adoption in July, 2010 of the Dodd-Frank Act, and may continue to expand as the result of implementing regulations being adopted by federal regulators. However, on May 24, 2018, EGRRCPA amended certain provisions of the Dodd-Frank Act to tailor them to the specific circumstances of various categories of financial institutions and transactions. For additional information on this legislation and its potential impact, refer to the Risk Factor entitled “The effect of financial services legislation and regulations remains uncertain” in Item 1A- Risk Factors in this Annual Report.

 

 Employees

 

As of December 31, 2020, we employed 577 full-time and 88 part-time persons. Our employees are our most valuable asset. Our exceptional team members are committed to maintaining an environment of personal growth and development. Employees of our bank subscribe to a common goal: To make this the best bank it can possibly be. Diversity is an asset in the pursuit of this goal. Employees with dissimilar backgrounds, perspectives, opinions and lifestyles help us understand the motivations and desires of our many different customers. Thus, we will strive to maintain a workforce that reflects the increasing diversity of the communities we serve. We believe that each member of our workforce should be accorded the utmost respect and should be given equal opportunity and encouragement to achieve their full potential. Cooperation and teamwork are valued as much as individual growth and contribution.

 


 

 

Lending Policy

 

As a routine part of our business, we make loans to businesses and individuals located within our market areas. Our lending policy states that the function of the lending operation is twofold: to provide a means for the investment of funds at a profitable rate of return with an acceptable degree of risk, and to meet the credit needs of the creditworthy businesses and individuals who are our customers. We recognize that in the normal business of lending, some losses on loans will be inevitable and should be considered a part of the normal cost of doing business.

 

Our lending policy anticipates that priorities in extending loans will be modified from time to time as interest rates, market conditions and competitive factors change. The policy sets forth guidelines on a nondiscriminatory basis for lending in accordance with applicable laws and regulations. The policy describes various criteria for granting loans, including the ability to pay; the character of the customer; evidence of financial responsibility; purpose of the loan; knowledge of collateral and its value; terms of repayment; source of repayment; payment history; and economic conditions.

 

The lending policy further limits the amount of funds that may be loaned against specified types of real estate collateral. For certain loans secured by real estate, the policy requires an appraisal of the property offered as collateral by a state certified independent appraiser. The policy also provides general guidelines for loan to value for other types of collateral, such as accounts receivable and machinery and equipment. In addition, the policy provides general guidelines as to environmental analysis, loans to employees, executive officers and directors, problem loan identification, maintenance of an allowance for loan losses, loan review and grading, mortgage and consumer lending, and other matters relating to our lending practices.

 

The Board of Directors has delegated significant lending authority to officers of our bank. The Board of Directors believes this empowerment, supported by our strong credit culture and the significant experience of our commercial lending staff, enables us to be responsive to our customers. The loan policy specifies lending authority for our lending officers with amounts based on the experience level and ability of each lender. Our loan officers and loan managers are generally able to approve loans ranging from $0.25 million and $2.5 million. We have established higher approval limits for our bank’s Chief Lending Officer, President and Chief Executive Officer ranging from $4.0 million up to $10.0 million. These lending authorities, however, are typically used only in rare circumstances where timing is of the essence. Loan requests exceeding $2.5 million require approval by the Officers Loan Committee, and loan requests exceeding $7.5 million, up to the legal lending limit of approximately $80.1 million, require approval by our bank’s Board of Directors. We generally apply an in-house lending limit that is significantly less than our bank’s legal lending limit.

 

Provisions of recent legislation, including the Dodd-Frank Act and EGRRCPA, when fully implemented by regulations to be adopted by federal agencies, may have a significant impact on our lending policy, especially in the areas of single-family residential real estate and other consumer lending. For additional information on this legislation and its potential impact, refer to the Risk Factor entitled “The effect of financial services legislation and regulations remains uncertain” in Item 1A- Risk Factors in this Annual Report.

 

Lending Activity

 

Commercial Loans. Our commercial lending group originates commercial loans primarily in our market areas. Our commercial lenders have extensive commercial lending experience, with most having at least ten years’ experience. Loans are originated for general business purposes, including working capital, accounts receivable financing, machinery and equipment acquisition, and commercial real estate financing, including new construction and land development.

 

Working capital loans are often structured as a line of credit and are reviewed periodically in connection with the borrower’s year-end financial reporting. These loans are generally secured by substantially all of the assets of the borrower and have a floating interest rate tied to the Wall Street Journal Prime Rate or 30-Day Libor Rate. Loans for machinery and equipment purposes typically have a maturity of three to five years and are fully amortizing, while commercial real estate loans are usually written with a five-year maturity and amortize over a 10- to 20-year period. Commercial loans typically have an interest rate that is fixed to maturity or is tied to the Wall Street Journal Prime Rate or 30-Day Libor Rate.

 


 

 

We evaluate many aspects of a commercial loan transaction in order to minimize credit and interest rate risk. Underwriting includes an assessment of the management, products, markets, cash flow, capital, income and collateral of the borrowing entity. This analysis includes a review of the borrower’s historical and projected financial results. Appraisals are generally required to be performed by certified independent appraisers where real estate is the primary collateral, and in some cases, where equipment is the primary collateral. In certain situations, for creditworthy customers, we may accept title reports instead of requiring lenders’ policies of title insurance.

 

 Commercial real estate lending involves more risk than residential lending because loan balances are typically greater and repayment is dependent upon the borrower’s business operations. We attempt to minimize the risks associated with these transactions by generally limiting our commercial real estate lending to owner-operated properties and to owners of non-owner occupied properties who have an established profitable history and satisfactory tenant structure. In many cases, risk is further reduced by requiring personal guarantees, limiting the amount of credit to any one borrower to an amount considerably less than our legal lending limit and avoiding certain types of commercial real estate financings.

 

We have no material foreign loans, and only limited exposure to companies engaged in energy producing and agricultural-related activities.

 

Single-Family Residential Real Estate Loans. We originate single-family residential real estate loans in our market areas, generally according to secondary market underwriting standards. Loans not conforming to those standards are made in certain circumstances. Single-family residential real estate loans provide borrowers with a fixed or adjustable interest rate with terms up to 30 years, with the fixed interest rate loans generally sold to various investors.

 

Our bank has a home equity line of credit program. Home equity lines of credit are generally secured by either a first or second mortgage on the borrower’s primary residence. The program provides revolving credit at a rate tied to the Wall Street Journal Prime Rate.

 

Consumer Loans. We originate various types of consumer loans, including new and used automobile and boat loans, credit cards and overdraft protection lines of credit for our checking account customers. Consumer loans generally have shorter terms and higher interest rates and usually involve more credit risk than single-family residential real estate loans because of the type and nature of the collateral.

 

We believe our consumer loans are underwritten carefully, with a strong emphasis on the amount of the down payment, credit quality, employment stability and monthly income of the borrower. These loans are generally repaid on a monthly repayment schedule with the source of repayment tied to the borrower’s periodic income. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and are thus likely to be adversely affected by job loss, illness and personal bankruptcy. In many cases, repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance because of depreciation of the underlying collateral. We believe that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans, and that consumer loans are important to our efforts to serve the credit needs of the communities and customers that we serve.

 

Loan Portfolio Quality

 

We utilize a comprehensive grading system for our commercial loans, whereby all commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed at various intervals.

 

Our independent loan review program is primarily responsible for the administration of the grading system and ensuring adherence to established lending policies and procedures. The loan review program is an integral part of maintaining our strong asset quality culture. The loan review function works closely with senior management, although it functionally reports to the Board of Directors. Using a risk-based approach to selecting credits for review, our loan review program covered approximately 52% of total commercial loans outstanding during 2020. In addition, a random sampling of retail loans is reviewed each quarter. Our watch list credits are reviewed monthly by our Board of Directors and our Watch List Committee, the latter of which is comprised of senior level officers from the administration, lending and loan review functions.

 


 

 

Loans are placed in a nonaccrual status when, in our opinion, uncertainty exists as to the ultimate collection of all principal and interest. As of December 31, 2020, loans placed in nonaccrual status totaled $3.4 million, or 0.1% of total loans, compared to $2.3 million, or 0.1% of total loans, at December 31, 2019. No loans were past due 90 days or more and still accruing interest at year-end 2020 or 2019.

 

Additional detail and information relative to the loan portfolio is incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) and Note 3 of the Notes to Consolidated Financial Statements in this Annual Report.

 

Allowance for Loan Losses

 

In each accounting period, we adjust the allowance to the amount we believe is necessary to maintain the allowance at an adequate level. Through the loan review and credit departments, we establish specific portions of the allowance based on specifically identifiable problem loans. The evaluation of the allowance is further based on, but not limited to, consideration of the internally prepared Allowance Analysis, loan loss migration analysis, composition of the loan portfolio, third party analysis of the loan administration processes and portfolio, and general economic conditions.

 

The Allowance Analysis applies reserve allocation factors to non-impaired outstanding loan balances, the result of which is combined with specific reserves to calculate an overall allowance amount. For non-impaired commercial loans, reserve allocation factors are based on the loan ratings as determined by our standardized grade paradigms and by loan purpose. Our commercial loan portfolio is segregated into five classes: 1) commercial and industrial loans; 2) vacant land, land development and residential construction loans; 3) owner occupied real estate loans; 4) non-owner occupied real estate loans; and 5) multi-family and residential rental property loans. The reserve allocation factors are primarily based on the historical trends of net loan charge-offs through a migration analysis whereby net loan losses are tracked via assigned grades over various time periods, with adjustments made for environmental factors reflecting the current status of, or recent changes in, items such as: lending policies and procedures; economic conditions; nature and volume of the loan portfolio; experience, ability and depth of management and lending staff; volume and severity of past due, nonaccrual and adversely classified loans; effectiveness of the loan review program; value of underlying collateral; lending concentrations; and other external factors, including competition and regulatory environment.

 

We established a Covid-19 reserve allocation factor to address the Coronavirus Pandemic and its potential impact on the collectability of the loan portfolio during the second quarter of 2020. The creation of this factor reflected our belief that the traditional nine environmental factors did not sufficiently capture and address the unique circumstances, challenges and uncertainties associated with the Coronavirus Pandemic, which include unprecedented federal government stimulus and interventions, statewide mandatory closures of nonessential businesses and periodic changes to such and our ability to provide payment deferral programs to commercial and retail borrowers without the interjection of troubled debt restructuring accounting rules. We review a myriad of items when assessing this new environmental factor, including virus infection rates, economic outlooks, employment data, business closures, foreclosures, payment deferments and government-sponsored stimulus programs. The Covid-19 reserve factor resulted in a $5.3 million increase to the allowance as of December 31, 2020.

 

Adjustments for specific lending relationships, particularly impaired loans, are made on a case-by-case basis. Non-impaired retail loan reserve allocations are determined in a similar fashion as those for non-impaired commercial loans, except that retail loans are segmented by type of credit and not a grading system. We regularly review the Allowance Analysis and make adjustments periodically based upon identifiable trends and experience.

  

A migration analysis is completed quarterly to assist us in determining appropriate reserve allocation factors for non-impaired loans. Our migration takes into account various time periods; however, at year-end 2020 we placed most weight on the period starting December 31, 2010 through December 31, 2020. We believe this period represents an appropriate range of economic conditions, and that it provides for an appropriate basis in determining reserve allocation factors given current economic conditions and the general market consensus of economic conditions in the near future.

 


 

 

Although the migration analysis provides an accurate historical accounting of our net loan losses, it is not able to fully account for environmental factors that will also very likely impact the collectability of our loans as of any quarter-end date. Therefore, we incorporate the environmental factors as adjustments to the historical data. Environmental factors include both internal and external items. We believe the most significant internal environmental factor is our credit culture and the relative aggressiveness in assigning and revising commercial loan risk ratings, with the most significant external environmental factor being the assessment of the current economic environment and the resulting implications on our loan portfolio. 

 

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and the timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position.

 

Financial institutions were not required to comply with the Current Expected Credit Loss (“CECL”) methodology requirements from the enactment date of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for an extension of the required CECL adoption date to January 1, 2022, which is the date we expect to adopt. An economic forecast is a key component of the CECL methodology. As we continue to experience an unprecedented economic environment whereby a sizable portion of the economy has been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus has been provided to businesses, individuals and state and local governments and financial institutions have offered businesses and individuals payment relief options, economic forecasts are regularly revised with no economic forecast consensus. Given the high degree of uncertainty surrounding economic forecasting, we have elected to postpone the adoption of CECL, and will continue to use our incurred loan loss reserve model as permitted.

 

Additional detail regarding the allowance is incorporated by reference to Management’s Discussion and Analysis and Note 3 of the Notes to Consolidated Financial Statements included in this Annual Report.

 

Investments

 

Bank Holding Company Investments. The principal investments of our bank holding company are the investments in the common stock of our bank and the common securities of our trusts. Other funds of our bank holding company may be invested from time to time in various debt instruments.

 

Subject to the limitations of the Bank Holding Company Act, we are also permitted to make portfolio investments in equity securities and to make equity investments in subsidiaries engaged in a variety of non-banking activities, which include real estate-related activities such as community development, real estate appraisals, arranging equity financing for commercial real estate, and owning and operating real estate used substantially by our bank or acquired for its future use. Our bank holding company has no plans at this time to make directly any of these equity investments at the bank holding company level. Our Board of Directors may, however, alter the investment policy at any time without shareholder approval.

 

Our Bank’s Investments. Our bank may invest its funds in a wide variety of debt instruments and may participate in the federal funds market with other depository institutions. Subject to certain exceptions, our bank is prohibited from investing in equity securities. Among the equity investments permitted for our bank under various conditions and subject in some instances to amount limitations, are shares of a subsidiary insurance agency, mortgage company, real estate company, or Michigan business and industrial development company, such as our insurance company and our real estate company. Under another such exception, in certain circumstances and with prior notice to or approval of the FDIC, our bank could invest up to 10% of its total assets in the equity securities of a subsidiary corporation engaged in the acquisition and development of real property for sale, or the improvement of real property by construction or rehabilitation of residential or commercial units for sale or lease. Our bank has no present plans to make such an investment. Real estate acquired by our bank in satisfaction of or foreclosure upon loans may be held by our bank for specified periods. Our bank is also permitted to invest in such real estate as is necessary for the convenient transaction of its business. Our bank’s Board of Directors may alter the bank’s investment policy without shareholder approval at any time.

 


 

 

Additional detail and information relative to the securities portfolio is incorporated by reference to Management’s Discussion and Analysis and Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report.

 

Competition

 

We face substantial competition in all phases of our operations from a variety of different competitors. We compete for deposits, loans and other financial services with numerous Michigan-based and national and regional banks, savings banks, thrifts, credit unions and other financial institutions as well as from other entities that provide financial services. Some of the financial institutions and financial service organizations with which we compete are not subject to the same degree of regulation as we are. Many of our primary competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than we do, and offer larger branch networks and other services which we do not. Most of these same entities have greater capital resources than we do, which, among other things, may allow them to price their services at levels more favorable to the customer and to provide larger credit facilities than we do. Under specified circumstances (that have been modified by the Dodd-Frank Act and EGRRCPA), securities firms and insurance companies that elect to become financial holding companies under the Bank Holding Company Act may acquire banks and other financial institutions. Federal banking law affects the competitive environment in which we conduct our business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. We also face new competition as a result of expansion into new markets.

 

Selected Statistical Information

 

Management’s Discussion and Analysis beginning on Page F-4 in this Annual Report includes selected statistical information.

 

Return on Equity and Assets

 

Return on Equity and Asset information is included in Management’s Discussion and Analysis beginning on Page F-4 in this Annual Report.

 

Available Information

 

We maintain an internet website at www.mercbank.com. We make available on or through our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practical after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We do not intend the address of our website to be an active link or to otherwise incorporate the contents of our website into this Annual Report.

 

Item 1A.

Risk Factors.

 

The following risk factors could affect our business, financial condition or results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report because they could cause the actual results and conditions to differ materially from those projected in forward-looking statements. Before you buy our common stock, you should know that investing in our common stock involves risks, including the risks described below. The risks that are highlighted here are not the only ones we face. If the adverse matters referred to in any of the risks actually occur, our business, financial condition or operations could be adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 


 

 

Risks Related to Our Business

 

The Coronavirus Pandemic has impacted our business, financial condition and results of operations and will continue to have an impact, the scope and duration of which is highly uncertain and dependent on factors that are outside of our control.

 

The ongoing pandemic associated with the spread of Covid-19 has caused significant disruptions throughout the State of Michigan and across the United States and global economies and financial markets. The Coronavirus Pandemic has impacted our business, financial condition and results of operations and will continue to do so. For example, we derive a large percentage of our net income from net interest income, which is derived from the yield on interest-earning assets offset by our cost of funds. Our net interest income has been negatively impacted primarily due to reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) significantly decreasing the targeted federal funds rate by 225 basis points during the second half of 2019 and the first quarter of 2020. Due to the Coronavirus Pandemic, the targeted federal funds rate is unlikely to be increased for the foreseeable future, resulting in prolonged pressure on our net interest income, which could reduce our net income in future periods.

 

Our results may also be negatively impacted by a deterioration in the quality of our loan portfolio due to the impact of the Coronavirus Pandemic on our loan customers. While we actively monitor the credit quality of our loan portfolio and make adjustments to our allowance for loan losses accordingly, the Coronavirus Pandemic has created significant disruptions in the United States economy, making it difficult to predict its impact with a high degree of certainty. While we believe we have appropriately assessed and presented our loan portfolio and allowance for loan losses to date in accordance with applicable accounting standards, we cannot be certain of that, nor can we be certain that we will adequately account for the future negative impacts of the Coronavirus Pandemic. This could negatively impact our financial condition and results of operations by increasing the amount of allowance for loan loss provisions reflected in our operating expenses, decreasing our interest income as borrowers become unable to repay their loans and increasing our operating expenses due to collection costs.

 

We are exposed to several additional risks associated with the Coronavirus Pandemic, including the risk that our operating effectiveness will decrease as we adapt to new policies requiring that our employees work from home; that we may temporarily lose the services of key members of our management team; that the economic downturn will negatively impact demand for loans across our loan portfolio; that the collateral securing our loans will decline in value; that reduced consumer spending will prolong the negative economic impacts of the Coronavirus Pandemic; that our portfolio of securities available for sale will decrease in value; and that we may face litigation due to our handling of the challenges associated with the Coronavirus Pandemic, including our participation in the Paycheck Protection Program.

 

While we believe that we have navigated the difficult environment associated with the Coronavirus Pandemic with success thus far, we may not be able to continue to do so, and this could expose our business, financial condition and results of operations to risks that could have a negative impact on your investment.

 

Adverse changes in economic conditions or interest rates may negatively affect our earnings, capital and liquidity.

 

The results of operations for financial institutions, including our bank, may be materially and adversely affected by changes in prevailing local and national economic conditions, including declines in real estate market values and the related declines in value of our real estate collateral, rapid increases or decreases in interest rates and changes in the monetary and fiscal policies of the federal government. Our profitability is heavily influenced by the spread between the interest rates we earn on loans and investments and the interest rates we pay on deposits and other interest-bearing liabilities. Substantially all of our loans are to businesses and individuals in Western, Central, and Southeastern Michigan, and any decline in the economy of these areas could adversely affect us. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors that influence market interest rates and our ability to respond to changes in these rates. At any given time, our assets and liabilities may be such that they will be affected differently by a given change in interest rates.

 


 

 

Significant declines in the value of commercial real estate could adversely impact us.

 

Approximately 59% of our total commercial loans, or about 51% of our total loans, relate to commercial real estate. Stressed economic conditions may reduce the value of commercial real estate and strain the financial condition of our commercial real estate borrowers, especially in the land development and non-owner occupied commercial real estate segments of our loan portfolio. Those difficulties could adversely affect us and could produce losses and other adverse effects on our business.

 

Market volatility may adversely affect us.

 

The capital and credit markets may experience volatility and disruption. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without apparent regard to those issuers’ underlying financial strength. Future levels of market disruption and volatility may have an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

 

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

 

We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. We compete for deposits, loans and other financial services with numerous Michigan-based and national and regional banks, thrifts, credit unions and other financial institutions as well as other entities that provide financial services, including securities firms and mutual funds. Some of the financial institutions and financial service organizations with which we compete are not subject to the same degree of regulation as we are. Many of our competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than we do and offer larger branch networks and other services which we do not, including trust and international banking services. Most of these entities have greater capital and other resources than we do, which, among other things, may allow them to price their services at levels more favorable to the customer and to provide larger credit facilities than we do. This competition may limit our growth or earnings. Under specified circumstances (that have been modified by the Dodd-Frank Act and EGRRCPA), securities firms and insurance companies that elect to become financial holding companies under the Bank Holding Company Act may acquire banks and other financial institutions. Federal banking law affects the competitive environment in which we conduct our business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

 

Our risk management systems may fall short of their intended objectives.

 

We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. Our risk management process seeks to balance our ability to profit from investing or lending positions with our exposure to potential losses. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Thus, we may, in the course of our activities, incur losses.

 

We may not be able to successfully adapt to evolving industry standards and market pressures.

 

Our success depends, in part, on the ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. This can reduce net interest income and noninterest income from fee-based products and services. In addition, the widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services in response to industry trends or developments in technology, or those new products may not achieve market acceptance. As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases. As a result, our business, financial condition, or results of operations may be adversely affected.

 


 

 

Our inability to execute or integrate potential future acquisitions successfully could impede us from realizing all of the benefits of the acquisitions, which could weaken our operations.

 

In addition to pursuing organic growth, we may also pursue strategic acquisition opportunities that we believe will fit our core philosophy and culture, enhance our profitability and provide appropriate risk-adjusted returns. These acquisition opportunities could be material to our business and involve a number of risks, including the following:

 

 

°

intense competition from other banking organizations and other acquirers for potential merger candidates drives market pricing;

 

°

time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions may divert human and capital resources without producing the desired returns;

 

°

estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution or assets are inherently complex and may be inaccurate;

 

°

potential exposure to unknown or contingent liabilities of targets; and

 

°

regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate.

 

If we are unable to successfully integrate potential future acquisitions, we could be impeded from realizing all of the benefits of those acquisitions and could weaken our business operations. The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration of the combining companies may result in unanticipated problems, expenses, liabilities and competitive responses, and may cause our stock price to decline. The difficulties of integrating an acquisition include, among others:

 

 

°

unanticipated issues in integration of information, communications and other systems;

 

°

unanticipated incompatibility of logistics, marketing and administrative methods;

 

°

maintaining employee morale and retaining key employees;

 

°

integrating the business cultures of both companies;

 

°

preserving important strategic client relationships;

 

°

coordinating geographically diverse organizations; and

 

°

consolidating corporate and administrative infrastructures and eliminating duplicative operations.

 

Finally, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings or growth opportunities we expect. These benefits may not be achieved within the anticipated time frame as well.

 

Our inability to overcome these risks could have an adverse effect on our ability to implement our business strategy, which, in turn, could have an adverse effect on our business, financial condition and results of operations.

 

The soundness of other financial institutions could adversely affect us.

 

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Even routine funding transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

 


 

 

Our credit losses could increase and our allowance may not be adequate to cover actual loan losses.

 

The risk of nonpayment of loans is inherent in all lending activities, and nonpayment, when it occurs, may have a materially adverse effect on our earnings and overall financial condition as well as the value of our common stock. Our focus on commercial lending may result in a larger concentration of loans to small businesses. As a result, we may assume different or greater lending risks than other banks. We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for losses based on several factors. If our assumptions are wrong, our allowance may not be sufficient to cover our losses, which would have an adverse effect on our operating results. The actual amounts of future provisions for loan losses cannot be determined at this time and may exceed the amounts of past provisions. Additions to our allowance decrease our net income.

 

We rely heavily on our management and other key personnel, and the loss of any of them may adversely affect our operations.

 

We are and will continue to be dependent upon the services of our management team, including our executive officers and our other senior managers. The unanticipated loss of our executive officers, or any of our other senior managers, could have an adverse effect on our growth and performance.

 

 In addition, we continue to depend on our key commercial loan officers. Several of our commercial loan officers are responsible, or share responsibility, for generating and managing a significant portion of our commercial loan portfolio. Our success can be attributed in large part to the relationships these officers as well as members of our management team have developed and are able to maintain with our customers as we continue to implement our community banking philosophy. The loss of any of these commercial loan officers could adversely affect our loan portfolio and performance, and our ability to generate new loans. Many of our key employees have signed agreements with us agreeing not to compete with us in one or more of our markets for specified time periods if they leave employment with us. However, we may not be able to effectively enforce such agreements.

 

Some of the other financial institutions in our markets also require their key employees to sign agreements that preclude or limit their ability to leave their employment and compete with them or solicit their customers. These agreements make it more difficult for us to hire loan officers with experience in our markets who can immediately solicit their former or new customers on our behalf.

 

Changes in the method of determining Libor, or the replacement of Libor with an alternative reference rate, may adversely affect interest income or expense.

 

Many of the commercial loans we make bear interest at a floating rate based on Libor, the London inter-bank offered rate. We pay interest on certain subordinated notes related to our trust preferred securities at rates based on Libor.

 

On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which oversees Libor, formally announced that it could not assure the continued existence of Libor in its current form beyond the end of 2021, and that an orderly transition process to one or more alternative benchmarks should begin. In June 2017, the Alternative Reference Rates Committee (“ARRC”), a steering committee comprised of large U.S. financial institutions organized by the Federal Reserve, announced that it had selected a modified version of the unpublished Broad Treasuries Financing Rate as the preferred alternative reference rate for U.S. dollar obligations. That rate, now referred to as the Secured Overnight Funding Rate (“SOFR”), is determined based upon actual transactions in certain portions of the bi-lateral and tri-party overnight repurchase agreement markets for certain U.S. Treasury obligations. The Federal Reserve Bank of New York (“FRBNY”) began publication of the SOFR in April 2018.

 

In May 2018, the Chicago Mercantile Exchange began trading SOFR futures contracts. The existence of a futures market may permit the development of a SOFR term curve. In July 2018, the Federal National Mortgage Association (“FNMA”) issued bonds using SOFR (an overnight rate) as a pricing mechanism. This was possible because of an unusual bond structure, in which interest was payable quarterly, but the interest reset period was daily. By the end of 2020, each of FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC”) had issued more than $125 billion in SOFR-indexed debt instruments in the capital markets.

 


 

 

In January 2019, ICE Benchmark Administration, the current provider of Libor, proposed for comment to market participants a U.S. Dollar ICE Bank Yield Index. This index would be based on two types of U.S. dollar-denominated transaction data: primary market wholesale, unsecured funding transactions for large, internationally active banks; and secondary market transactions in wholesale, unsecured bonds issued by large, internationally active banks. These data would be used to construct a yield curve from which one-month, three-month and six-month settings could be obtained. Following comments from market participants, the ICE Benchmark Administration modified the methodology of calculation of its index (which it is continuing to test). In May 2020, it announced that the index may be made available as a credit-spread supplement to the SOFR. If the index was accepted by market participants, it might furnish commercial bank-based term rates more directly comparable to the existing structure of Libor than the government securities-based SOFR.

 

During 2019 and 2020, among other things, the ARRC published a white paper on ways in which market participants could use SOFR in cash markets, conducted surveys of market participants, engaged with cognizant U.S. government agencies and private sector groups regarding tax, securities, and derivatives issues presented by the transition from Libor, published sample transition provisions for a variety of types of loan and note agreements, and investigated methods by which a forward-looking term SOFR index could be established. To facilitate the development of a generally-recognized forward-looking SOFR index, on March 2, 2020 the FRBNY began publication of 30-, 90-, and 180-day SOFR Averages, as well as a SOFR Index, on each business day. The FRBNY has stated that it will consider the potential benefits of introducing calendar month-based rates and/or adding further tenors as additional reference rates.

 

In July 2019, both FNMA and FHLMC announced their intention to develop new adjustable-rate mortgage loan products based on SOFR. In February 2020, FNMA and FHLMC each announced that they would: (i) require inclusion of ARRC-recommended transition language in all single-family adjustable rate mortgage (“ARM”) loans closed on or after June 1, 2020; (ii) require all Libor-based single-family and multi-family ARM loans to have loan application dates on or before September 30, 2020 in order to be eligible for acquisition; and (iii) cease acquisition of single-family and multi-family Libor ARM loans on or before December 31, 2020. During the fourth quarter of 2020, each of FNMA and FHLMC began acquiring SOFR ARM loans and ceased purchasing Libor-based products.

 

In November 2020, the ICE Benchmark Administration announced a consultation regarding the cessation of the publication of Libor. The consultation proposed a December 31, 2021 cessation for all tenors of various foreign currencies and for the one week and two-month U.S. dollar Libor, and a June 30, 2023 cessation for the remaining overnight, one- month, three-month, six-month and twelve-month U.S. dollar Libor tenors. This represented an 18-month extension of Libor publication for the most frequently used tenors of U.S. dollar Libor from the cessation date originally proposed in 2017. The consultation period closed on January 25, 2021. ICE Benchmark Administration indicated that it would share the results of the consultation with the FCA, and subsequently publish further guidance.

 

In coordinated announcements on November 30, 2020, the FCA and each of the U.S. federal banking agencies recognized the proposed extension of Libor publication for the identified tenors of U.S. dollar Libor. The federal banking agencies noted that this would allow most legacy U.S. dollar Libor contracts to mature before Libor experiences disruptions. At the same time, the agencies stated that entry into new contracts using Libor as a reference rate after December 31, 2021 by supervised banking organizations would create safety and soundness risks. Accordingly, the federal banking agencies encouraged supervised banking organizations to cease using Libor as a reference rate in their agreements as soon as possible, but in any event by December 31, 2021. They also stated that new contracts entered into before December 31, 2021 should either utilize a reference rate other than Libor or have robust fallback language that includes a clearly defined alternative reference rate after Libor’s discontinuation. Certain limited exceptions to that guidance were included by the federal banking agencies, in the event that the ICE Benchmark Administration does continue to publish Libor U.S. dollar tenors after December 31, 2021.

 

On January 19, 2021, Governor Mario Cuomo presented the 2022 Executive Budget for the State of New York. The Executive Budget included a draft Libor-fallback statute proposed by the ARRC. The draft statute is intended to minimize legal uncertainty in Libor contracts governed by New York law, which includes many derivative contracts. There can be no assurance whether, or in what form, such draft legislation may be enacted in New York.

 


 

 

On January 25, 2021, the International Swaps and Derivatives Association’s IBOR (interbank offered rates) Fallbacks Protocol (“Protocol”) and IBOR Fallbacks Supplement (“Supplement”) each took effect. Effectiveness of the Protocol means that existing swaps and other derivative contracts will incorporate the new ISDA fallbacks if both counterparties have accepted the Protocol. Effectiveness of the Supplement means that new derivatives contracts that incorporate standard ISDA definitions and reference a relevant IBOR will also incorporate the new fallbacks. These measures are intended to provide greater certainty with respect to derivative contracts.

 

It is unclear whether, or in what form, Libor will continue to exist after 2021. Any transition to an alternative benchmark will require careful consideration and implementation so as not to disrupt the stability of financial markets. If Libor ceases to exist, we may need to take a variety of actions, including negotiating certain of our agreements based on an alternative benchmark that may be established, if any. There is no guarantee that a transition from Libor to an alternative benchmark will not result in financial market disruptions, significant changes in benchmark rates, or adverse changes in the value of certain of our loans, and our income and expense.

 

Our accounting policies and methods are the basis for how we prepare our consolidated financial statements, and they require management to make estimates about matters that are inherently uncertain.

 

Accounting policies and processes are fundamental to how we record and report our financial condition and results of operations. We must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with U.S. GAAP. In some cases, we must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been reported under a different alternative.

 

We have identified certain accounting policies as being critical because they require us to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding management’s judgments and the estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior period financial statements. For additional information, see “Critical Accounting Policies and Estimates” beginning on page F-4 of this Annual Report and “Note 1 – Summary of Significant Accounting Policies” beginning on page F-47 of this Annual Report.

 

We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.

 

The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we do. There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

 

Damage to our reputation could materially harm our business.

 

Our relationship with many of our clients is predicated upon our reputation as a fiduciary and a service provider that adheres to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client expectations and other issues with respect to one or more of our businesses could materially and adversely affect our reputation, our ability to attract and retain clients or our sources of funding for the same or other businesses. Preserving and enhancing our reputation also depends on maintaining systems and procedures that address known risks and regulatory requirements, as well as our ability to identify and mitigate additional risks that arise due to changes in our businesses and the marketplaces in which we operate, the regulatory environment and client expectations. If any of these developments has a material effect on our reputation, our business will suffer.     

 


 

 

Our business is subject to operational risks.

 

We, like most financial institutions, are exposed to many types of operational risks, including the risk of fraud by employees or outsiders, unauthorized transactions by employees or operational errors. Operational errors may include clerical or record keeping errors or those resulting from faulty or disabled computer or telecommunications systems. Given our volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully corrected. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.

 

We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, including, for example, computer viruses or electrical or telecommunications outages, which may give rise to losses in service to customers and to loss or liability to us. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations to us, or will be subject to the same risk of fraud or operational errors by their respective employees as are we, and to the risk that our or our vendors’ business continuity and data security systems prove not to be adequate. We also face the risk that the design of our controls and procedures proves inadequate or is circumvented, causing delays in detection or errors in information. Although we maintain a system of controls designed to keep operational risks at appropriate levels, there can be no assurance that we will not suffer losses from operational risks in the future that may be material in amount.

 

We face the risk of cyber-attack to our computer systems.

 

In the ordinary course of business, we collect and store sensitive data, including proprietary business information and personally identifiable information of our customers and employees in systems and on networks. The secure processing, maintenance and use of this information is critical to our operations. To date, we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we could experience a significant event in the future. Cybersecurity threats include unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events. Remote working of employees during the Coronavirus Pandemic introduces additional potential cybersecurity risks due to the use of home networks, video conferencing and other remote work technologies over which we do not have as much control as our internal systems. Cyber threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. If one or more of these events occurs, it could result in the disclosure of confidential client information, damage to our reputation with our clients and the market, additional costs to us (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial losses, to both us and our clients and customers. Such events could also cause interruptions or malfunctions in our operations (such as the lack of availability of our online banking system), as well as the operations of our clients, customers or other third parties. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers. Although we maintain safeguards to protect against these risks, there can be no assurance that we will not suffer losses in the future that may be material in amount.

 

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. In August 2019, the federal bank regulatory agencies issued a statement recommending that banking organizations use a standardized approach to assess and improve cybersecurity preparedness. The agencies noted that the use of standardized tools, such as the FFIEC Cybersecurity Assessment Tool, makes firms better able to track their progress over time, and to share information and best practices with other financial institutions, a behavior which the bank regulatory agencies encourage. In April 2020, the federal banking agencies issued a statement highlighting the risks presented by banking organizations’ use of cloud computing services in their business. The statement noted specific risks unique to the cloud computing environment, and the importance of ongoing controls of virtual infrastructure, care in the use of containers for data, and the sensitivity of use of managed security services, among other things. Although guidance of this nature does not have the full force and effect of law, it sets out supervisory priorities and expectations regarding safe and sound operation. Failure to observe such guidance may result in supervisory identification of unsafe or unsound practices or other deficiencies in risk management or other areas that do not constitute violations of law or regulation.

 

Regulatory Risks

 

The timing and effect of Federal Reserve Board policy normalization remains uncertain.

 

In September 2014, the Federal Reserve Board announced principles it would follow to implement monetary policy normalization, that is, to raise the federal funds rate and other short-term interest rates to more historically normal levels and to reduce the Federal Reserve’s securities holdings, so as to promote its statutory mandate of maximum employment and price stability. The Federal Open Market Committee (“FOMC”) took the initial step in that process by raising the federal funds rate by 25 basis points in December 2015, the first such action since December 2008. Subsequently, the FOMC refined the normalization principles and announced greater detail about its planned approach. In September 2017, the FOMC announced the start of a gradual reduction in the Federal Reserve’s securities holdings, commencing in October 2017. In each of March, June, September and December 2018, the FOMC raised the federal funds rate by 25 basis points, and announced its intention to continue to raise the federal funds rate gradually over the next few years. In January 2019, the FOMC announced its intention to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control of the federal funds and other short-term interest rates is exercised primarily through adjustment of its administered rates. The FOMC stated that it was prepared to adjust the details of the reduction of its balance sheet in light of economic and financial developments, and would be prepared to use its full range of tools, including changing the size and composition of its balance sheet, if future economic conditions warranted a more accommodative monetary policy than could be achieved solely by reducing the federal funds rate.

 


 

 

In July 2019, the FOMC announced the cessation of the reduction in its securities portfolio and reduced the federal funds rate by 25 basis points. In August 2019, the FOMC commenced reinvestment of principal payments received from agency debt and agency mortgage-backed securities in Treasury securities and agency mortgage-backed securities, as well as the rollover of maturing Treasury securities in its portfolio. In September 2019, the FOMC again lowered the federal funds rate by 25 basis points. In October 2019, the FOMC issued a reaffirmation of its January 2019 statement, and announced that in light of recent and expected increases in the Federal Reserve’s non-reserve liabilities and in order to maintain ample reserve balances over time at or above levels prevailing in early September 2019, the Federal Reserve would purchase Treasury bills at least into the second quarter of 2020. The statement also announced that the Federal Reserve would conduct term and overnight repurchase agreement operations at least through January 2020 to ensure that the supply of reserves remained ample, even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures. At its regular October 2019 meeting, the FOMC again lowered the federal funds rate by 25 basis points.

 

In light of the evolving risks to economic activity posed by the Coronavirus Pandemic, the FOMC took five separate actions in March, 2020. Taken together, those actions reduced the federal funds target range to 0.00% to 0.25%, directed expanded purchases of U.S. Treasury securities and agency mortgage-backed securities and large scale overnight and term repurchase operations, committed the FOMC to use its full range of tools to support the U.S. economy, and provided U.S. dollar swap lines and repurchase facilities to certain foreign central banks and international organizations.

 

On August 27, 2020, the FOMC announced revisions to its Statement on Longer-Run Goals and Monetary Policy Strategy (“Statement”). Under the revised Statement, the FOMC emphasized that its statutory mandate of maximum employment is a broad-based and inclusive goal, and that its policy decisions would be informed by its assessment of the shortfall from maximum employment. Regarding price stability, the Statement provides that the FOMC seeks to achieve inflation that averages 2% over time. Accordingly, when inflation has been persistently below 2%, the FOMC will likely aim to achieve inflation moderately above 2% for some time. The revised Statement has been reflected in subsequent actions by the FOMC.

 

At its meeting on January 27, 2021, the FOMC kept the target range for the federal funds rate at 0.00% to 0.25%, and stated that it expects to maintain this target range until labor market conditions have reached levels consistent with the FOMC’s assessment of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time. To foster smooth market functioning and accommodative monetary conditions, at the same time the FOMC directed continued monthly increases in its holdings of U.S. Treasury securities of at least $80 billion, and of agency mortgage-backed securities of at least $40 billion. There can be no assurance that the operations announced in January 2021 will continue, that they will be effective to accomplish their stated policy goals, or as to the actual impact of those operations and policies on the financial markets, the broader economy, or on our business, financial condition, results of operations, access to credit or the trading price of our common stock.

 

The effect of financial services legislation and regulations remains uncertain.

 

In response to the 2008 financial crisis, on July 21, 2010, President Obama signed the Dodd-Frank Act, the most comprehensive reform of the regulation of the financial services industry since the Great Depression of the 1930’s. Among many other things, the Dodd-Frank Act provides for increased supervision of financial institutions by regulatory agencies, more stringent capital requirements for financial institutions, major changes to deposit insurance assessments by the FDIC, prohibitions on proprietary trading and sponsorship or investment in hedge funds and private equity funds by insured depository institutions, holding companies, and their affiliates, heightened regulation of hedging and derivatives activities, a greater focus on consumer protection issues, in part through the formation of a new Consumer Financial Protection Bureau (“CFPB”) having powers formerly split among different regulatory agencies, extensive changes to the regulation of residential mortgage lending, imposition of limits on interchange transaction and network fees for electronic debit transactions and repeal of the prohibition on payment of interest on demand deposits. Many of the Dodd-Frank Act’s provisions have delayed effective dates, while other provisions require implementing regulations of various federal agencies, some of which have not yet been adopted in final form.

 

On February 3, 2017, however, President Trump signed Executive Order 13772, specifying new core principles for regulating the U.S. financial system. Among other things, the President directed the Secretary of the Treasury, in consultation with federal regulatory agencies, to review existing laws and regulations and report on the extent to which they were consistent with the core principles. The Treasury Department has published several reports in response to the Executive Order. In addition, beginning in February 2017, Congress passed, and the President signed, more than a dozen resolutions under the Congressional Review Act, repealing various federal regulations, including regulations adopted by the CFPB.

 

On May 24, 2018, EGRRCPA was enacted, amending numerous provisions of the Dodd-Frank Act. While some of the changes affect only much larger institutions, a number of provisions relax or eliminate restrictions applicable to us and our bank. Among these latter changes are: simplified capital adequacy requirements; exemption from the proprietary trading and other restrictions of the Volcker Rule; less frequent periodic supervisory examinations; reductions in certain periodic reporting requirements; exclusion of specified amounts of reciprocal deposits, received by our bank from other insured depository institutions, from the “brokered deposit” limitations of the Federal Deposit Insurance Act; revised capital treatment for certain high volatility commercial real estate loans; and relaxation of certain requirements applicable to residential mortgage loans made to our customers.

 

While some of those EGRRCPA changes became effective immediately upon enactment, many others required implementing regulations by the federal banking agencies before becoming effective. At the dates indicated, the federal banking agencies adopted regulations in final form, applicable to us and our bank, implementing EGRRCPA provisions simplifying capital adequacy requirements (September 2019), granting exemption from the proprietary trading and other restrictions of the Volcker Rule (July 2019), reducing the frequency of periodic supervisory examinations (December 2018), reducing certain periodic reporting requirements (June 2019), excluding specified amounts of reciprocal deposits, received by our bank from other insured depository institutions, from the “brokered deposit” limitations of the Federal Deposit Insurance Act (March 2019), providing clarifications and revised capital treatment for certain high volatility commercial real estate loans as well as clarifying the capital treatment of certain financings of one-to-four family residential properties and the development of land (November 2019), and relaxing appraisal requirements for certain real property mortgage transactions (September 2019).

 

In December 2019, the FDIC (which regulates our bank) and the Office of the Comptroller of the Currency (“OCC”) jointly proposed significant revisions to their respective versions of the existing uniform regulations (jointly adopted by the Federal Reserve, FDIC, and the OCC) that implement the Community Reinvestment Act. On May 20, 2020, the OCC adopted a final revised rule, but the Chair of the FDIC announced that the FDIC was not prepared to do so at that time. The Federal Reserve (which regulates our company) did not participate in the OCC/FDIC proposal. Rather, the Federal Reserve published an advance notice of proposed rulemaking, requesting feedback on different approaches to modernizing its Community Reinvestment Act regulation. The comment period has expired. There can be no assurance whether or when any proposed changes in the existing regulations will be adopted by the FDIC or the Federal Reserve.

 


 

 

On January 20, 2021, President Biden signed a Memorandum on Modernizing Regulatory Review, and Executive Order No. 13992, revoking a number of Executive Orders concerning federal regulation. Also, the President’s chief of staff issued a Memorandum to all Executive Departments and Agencies directing, subject to certain exceptions, a temporary freeze on proposal or issuance of new or pending regulations until a designee of President Biden reviews and approves the rule.

 

Thus, the effect of financial services legislation and regulations remains uncertain. The implementation, amendment, or repeal of federal financial services laws or regulations may limit our business opportunities, impose additional costs on us, impact our revenues or the value of our assets, or otherwise adversely affect our business.

 

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

 

The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers, the federal deposit insurance fund, and the stability of the U.S. financial system, not our creditors or shareholders. Existing state and federal banking laws subject us to substantial limitations with respect to the making of loans, the purchase of securities, the payment of dividends and many other aspects of our business. Some of these laws may benefit us, others may increase our costs of doing business, or otherwise adversely affect us and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, which may be accelerated by the recent change in the federal administration, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition. Federal economic and monetary policy may also affect our ability to attract deposits, make loans and achieve satisfactory interest spreads.

 

Minimum capital requirements have increased.

 

The provisions of the Dodd-Frank Act relating to capital to be maintained by financial institutions approach convergence with the standards (generally known as Basel III) adopted in December, 2010 by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision. Among other things, those standards contain a narrower definition of elements qualifying for inclusion as Tier 1 capital and higher minimum risk-based capital levels than those specified in previous U.S. law and regulations. In July, 2013, the U.S. federal bank regulatory agencies adopted regulations to implement the provisions of the Dodd-Frank Act and Basel III for U.S. financial institutions. The new regulations became applicable to us and our bank effective January 1, 2015.

 

The new regulations implemented (i) revised definitions of regulatory capital elements, (ii) a new common equity Tier 1 (“CET 1”) minimum capital ratio requirement, (iii) an increase in the existing minimum Tier 1 capital ratio requirement, (iv) new limits on capital distributions and certain discretionary bonus payments if an institution does not hold a specified amount of CET 1 (called a capital conservation buffer) in addition to the amount required to meet its minimum risk-based capital requirements, (v) new risk-weightings for certain categories of assets, and (vi) other requirements applicable to banking organizations which have total consolidated assets or total consolidated on-balance sheet foreign exposure exceeding specified amounts (that are greatly in excess of those of us and our bank), which elect to use the advanced measurement approach for calculating risk-weighted assets, or which are subsidiaries of banking organizations that use the advanced measurement approach (“Advanced Approaches Entities”).

 

Among other things, the new regulations generally require banking organizations to recognize in regulatory capital most components of accumulated other comprehensive income (“AOCI”), including accumulated unrealized gains and losses on available for sale securities. This requirement, which was not imposed under previous risk-based capital regulations, may be avoided by banking organizations, such as us and our bank, that are not Advanced Approaches Entities, by making a one-time, irrevocable election on the first quarterly regulatory report following the date on which the regulations become effective as to them. We made the one-time, irrevocable election regarding the treatment of AOCI on March 31, 2015.

 

In addition, the new regulations (unlike the original proposal), permit companies such as us, which had total assets of less than $15 billion on December 31, 2009, and had issued trust preferred securities on or prior to May 19, 2010, to continue to include such securities in Tier 1 capital.

 

On January 1, 2015, for banking organizations such as us and our bank that are not Advanced Approaches Entities, the new regulations mandated a minimum ratio of CET 1 to standardized total risk-weighted assets (“RWA”) of 4.5%, an increased ratio of Tier 1 capital to RWA of 6.0% (compared to the prior requirement of 4.0%), a total capital ratio (that is, the sum of Tier 1 and Tier 2 capital to RWA) of 8.0%, and a minimum leverage ratio (that is, Tier 1 capital to adjusted average total consolidated assets) of 4.0%. The calculation of these amounts is affected by the new definitions of certain capital elements. The capital conservation buffer comprised solely of CET 1 was phased-in commencing January 1, 2016, beginning at 0.625% of RWA and rising to 2.5% of RWA on January 1, 2019. Failure by a banking organization to maintain the aggregate required minimum capital ratios and capital conservation buffer will impair its ability to make certain distributions (including dividends and stock repurchases) and discretionary bonus payments to executive officers.

 


 

 

On May 24, 2018, EGRRCPA was enacted, amending numerous provisions of the Dodd-Frank Act. Among other things, the new law simplified capital requirements for certain organizations (such as us and our bank) by directing the federal banking agencies to develop a Community Bank Leverage Ratio (“CBLR”). The CBLR, to be set between 8% and 10% of tangible equity capital to average total consolidated assets, would apply to Qualified Community Banks. The law defines Qualified Community Banks as those depository institutions and depository institution holding companies having total consolidated assets of less than $10 billion that meet other specified risk criteria, to be determined by regulations of the federal banking agencies based on factors prescribed in the statute. A Qualified Community Bank satisfying the CBLR, by reason of the EGRRCPA provision, would be deemed to be in compliance with all applicable leverage and risk-based capital requirements and, in the case of a depository institution, be deemed “well-capitalized” for purposes of the Federal Deposit Insurance Act.

 

In February 2019, the federal banking agencies published in the Federal Register a notice of proposed rule-making to implement this EGRRCPA capital adequacy provision. Final rules were adopted by each of the federal banking agencies in November 2019, which became effective January 1, 2020. The final rules represent an alternative to the capital adequacy rules that became applicable to us and our bank on January 1, 2015, and that are described above (the generally applicable rules).

 

The final rules based on the EGRRCPA provision establish a CBLR of 9%. A “Qualifying Community Banking Organization” as defined in the final rules (a “QCBO”), may opt into the rules. To be a QCBO, a banking organization must satisfy the following criteria: (i) not be an Advanced Approaches Entity; (ii) have a leverage capital ratio greater than 9%; (iii) total consolidated assets of less than $10 billion; (iv) total off-balance sheet exposures (excluding certain derivatives) of 25% or less of total consolidated assets; and (v) a sum of total trading assets and trading liabilities of 5% or less of total consolidated assets. For this purpose, the leverage capital ratio of a banking organization is the ratio of its Tier 1 capital to its average total consolidated assets, minus amounts deducted from Tier 1 capital.

 

A banking organization meeting the QCBO criteria may elect to opt in to the CBLR framework (an electing banking organization). An electing banking organization is deemed to have met the “well-capitalized” ratio requirements of, and otherwise to be in compliance with, the generally applicable rules. It will not be required to calculate and report risk-based capital ratios under the generally applicable rules. In the case of an electing banking organization that is an insured bank, it will also be considered to have met the well-capitalized ratio requirements of the prompt corrective action provisions of the Federal Deposit Insurance Act. We did not opt into the CBLR framework.

 

If an electing banking organization subsequently fails to satisfy any of the criteria of a QCBO, but continues to report a leverage capital ratio greater than 8%, it may continue to use the CBLR framework for a grace period of up to two quarters. As long as the electing banking organization can return to compliance with all of the QCBO criteria within the two quarters, it will continue to be deemed to meet the “well-capitalized” ratio requirements and be in compliance with the generally applicable rules. A banking organization will be required to comply with the generally applicable rules, and file the relevant regulatory reports, if it: (i) is unable to restore compliance with all of the QCBO criteria (including the greater than 9% leverage capital ratio) during the two-quarter grace period; (ii) reports a leverage capital ratio of 8% or less; or (iii) ceases to satisfy the QCBO criteria because of a merger transaction.

 

In response to a mandate in the CARES Act, adopted in response to the Coronavirus Pandemic, the federal banking agencies adopted interim rules temporarily reducing the required CBLR. As adopted in final form, effective October 1, 2020, the required CBLR is 8% until December 31, 2020, 8.5% in 2021, and returns to 9% thereafter. The final rule also provides a community banking organization that temporarily fails to meet the QCBO criteria will remain deemed well-capitalized during a two-quarter grace period if its leverage capital ratio remains greater than the following levels during the periods indicated: before December 31, 2020, 7%; during 2021, 7.5%; and any time thereafter, 8%.

 

To alleviate impacts of the Coronavirus Pandemic, on December 2, 2020, the federal banking agencies adopted an interim final rule regarding regulatory thresholds based on asset size of banking organizations. Under the interim final rule, banking organizations may use total assets as of December 31, 2019 in determining eligibility under various regulatory regimes. Among the regulations covered by the interim final rule is the CBLR framework. Under the interim final rule, otherwise applicable regulatory requirements regarding asset size determinations will once again apply as of January 1, 2022.

 


 

 

The increased minimum capital requirements may adversely affect our ability (and that of our bank) to pay cash dividends, reduce our profitability, or otherwise adversely affect our business, financial condition or results of operations. In the event of a need for additional capital to meet these requirements, there can be no assurance of our ability to raise funding in the equity and capital markets. Factors that we cannot control, such as the disruption of financial markets or negative views of the financial services industry generally, could impair our ability to raise qualifying equity capital. In addition, our ability to raise qualifying equity capital could be impaired if investors develop a negative perception of our financial prospects. If we were unable to raise qualifying equity capital, it might be necessary for us to sell assets in order to maintain required capital ratios. We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our results of operations, cash flow and financial condition.

 

Risks Related to Our Stock

 

Future sales of our common stock or other securities may dilute the value of our common stock.

 

In many situations, our Board of Directors has the authority, without any vote of our shareholders, to issue shares of our authorized but unissued preferred or common stock, including shares authorized and unissued under our equity incentive plans. In the future, we may issue additional securities, through public or private offerings, in order to raise additional capital. Any such issuance would dilute the percentage of ownership interest of existing shareholders and may dilute the per share book value of the common stock. In addition, option holders under our stock-based incentive plans may exercise their options at a time when we would otherwise be able to obtain additional equity capital on more favorable terms.

 

We may need to raise additional capital in the future, and such capital may not be available when needed or at all.

 

We may need or want to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. Economic conditions and any loss of confidence in financial institutions generally may increase our cost of funding and limit access to certain customary sources of capital.

 

There can be no assurance that capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of equity or debt purchasers, or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, potentially, our liquidity. Also, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition and results of operations.

 

Our Articles of Incorporation and By-laws and the laws of the State of Michigan contain provisions that may discourage or prevent a takeover of our company and reduce any takeover premium.

 

Our Articles of Incorporation and By-laws, and the corporate laws of the State of Michigan, include provisions which are designed to provide our Board of Directors with time to consider whether a hostile takeover offer is in our and our shareholders’ best interest. These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control. The provisions also could diminish the opportunities for a holder of our common stock to participate in tender offers, including tender offers at a price above the then-current market price for our common stock. These provisions could also prevent transactions in which our shareholders might otherwise receive a premium for their shares over then-current market prices, and may limit the ability of our shareholders to approve transactions that they may deem to be in their best interest.

 

The Michigan Business Corporation Act contains provisions intended to protect shareholders and prohibit or discourage various types of hostile takeover activities. In addition to these provisions and the provisions of our Articles of Incorporation and By-laws, federal law requires the Federal Reserve Board’s approval prior to acquiring “control” of a bank holding company. All of these provisions may delay or prevent a change in control without action by our shareholders and could adversely affect the price of our common stock.

 


 

 

There is a limited trading market for our common stock.

 

The price of our common stock has been, and will likely continue to be, subject to fluctuations based on, among other things, economic and market conditions for bank holding companies and the stock market in general, as well as changes in investor perceptions of our company. The issuance of new shares of our common stock also may affect the market for our common stock.

 

Our common stock is traded on the Nasdaq Global Select Market under the symbol “MBWM.” The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control. While we are a publicly-traded company, the volume of trading activity in our stock is still relatively limited. Even if a more active market develops, there can be no assurance that such a market will continue, or that our shareholders will be able to sell their shares at or above the price at which they acquired shares.

 


 

 

The value of securities in our investment securities portfolio may be negatively affected by disruptions in securities markets.

 

Prices and volumes of transactions in the nation’s securities markets can be affected suddenly by economic crises, or by other national or international crises, such as national disasters, acts of war or terrorism, changes in commodities markets, or instability in foreign governments. Disruptions in securities markets may detrimentally affect the value of securities that we hold in our investment portfolio, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that declines in market value associated with these disruptions will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

 

  

Item 1B.

Unresolved Staff Comments

 

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more before the end of our 2020 fiscal year and that remain unresolved.

 

 

Item 2.

Properties.

 

Our headquarters is located in our bank’s main office facility in Grand Rapids, Michigan. Our bank operates 44 banking offices primarily concentrated throughout Western and Central Michigan, most of which are full-service facilities. We also have a banking office in Troy, Michigan, and in late 2020 we opened a residential mortgage loan production office in the Cincinnati, Ohio metropolitan area. We have larger banking facilities in Alma, Kalamazoo, Lansing, Mt. Pleasant and West Branch. The remaining banking offices generally range in size from 1,200 to 3,200 square feet, based on the location and number of employees located at the facility. All of our banking offices are owned by our bank except for seven that are rented under various operating lease agreements. In several instances, the banking offices contain more usable space than what is needed for current banking operations. This excess space, totaling approximately 23,500 square feet, is generally leased to unrelated businesses. In addition, certain functions operate out of our standalone facility located in Alma.

 

As part of our bank’s branch rationalization efforts, we recently announced that our bank and Lake Trust Credit Union have entered into an agreement for the sale of our banking office located in Hastings, Michigan, with the sale expected to be consummated by March 31, 2021. The agreement includes the 4,300 square-foot facility, all associated assets and approximately $16 million in deposits.

 


 

 

We consider our properties and equipment to be well maintained, in good operating condition and capable of accommodating current growth forecasts. However, we may choose to add branch locations to expand our presence in current markets and/or in new markets or, alternatively, to consolidate, close or relocate branches if we believe it would be beneficial to our overall performance.

  

Item 3.

Legal Proceedings.

 

From time to time, we may be involved in various legal proceedings that are incidental to our business. In the opinion of management, we are not a party to any legal proceedings that are material to our financial condition, either individually or in the aggregate.

 

Item 4.

Mine Safety Disclosures.

 

Not applicable.

  

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information and Holders

 

Our common stock is traded on the Nasdaq Global Select Market under the symbol “MBWM.” At March 1, 2021, there were approximately 1,400 record holders of our common stock. In addition, we estimate that there were approximately 7,000 beneficial owners of our common stock who own their shares through brokers or banks.

 

Dividend Policy

 

The following table shows the high and low sales prices for our common stock as reported by the Nasdaq Global Select Market for the periods indicated and the quarterly cash dividends paid by us during those periods.

 

   

High

   

Low

   

Dividend

 

2020

                       

First Quarter

  $ 37.16     $ 18.90     $ 0.28  

Second Quarter

    26.08       18.64       0.28  

Third Quarter

    24.29       17.09       0.28  

Fourth Quarter

    28.06       17.85       0.28  
                         

2019

                       

First Quarter

  $ 35.82     $ 27.86     $ 0.26  

Second Quarter

    34.69       30.58       0.26  

Third Quarter

    34.24       29.78       0.27  

Fourth Quarter

    37.32       31.60       0.27  

 

Holders of our common stock are entitled to receive dividends that the Board of Directors may declare from time to time. We may only pay dividends out of funds that are legally available for that purpose. We are a financial holding company and substantially all of our assets are held by our bank and its subsidiaries. Our ability to pay dividends to our shareholders depends primarily on our bank’s ability to pay dividends to us. Dividend payments and extensions of credit to us from our bank are subject to legal and regulatory limitations, generally based on capital levels and current and retained earnings, imposed by law and regulatory agencies with authority over our bank. The ability of our bank to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. In addition, under the terms of our subordinated debentures, we would be precluded from paying dividends on our common stock if an event of default has occurred and is continuing under the subordinated debentures, or if we exercised our right to defer payments of interest on the subordinated debentures, until the deferral ended.

 


 

 

We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements. Our bank’s ability to pay cash and stock dividends or repurchase equity securities is subject to limitations under various laws and regulations and to prudent and sound banking practices.

 

On January 16, 2020, our Board of Directors declared a cash dividend on our common stock in the amount of $0.28 per share that was paid on March 18, 2020 to shareholders of record as of March 6, 2020. On April 16, 2020, our Board of Directors declared a cash dividend on our common stock in the amount of $0.28 per share that was paid on June 17, 2020 to shareholders of record as of June 5, 2020. On July 16, 2020, our Board of Directors declared a cash dividend on our common stock in the amount of $0.28 per share that was paid on September 16, 2020 to shareholders of record as of September 4, 2020. On October 15, 2020, our Board of Directors declared a cash dividend on our common stock in the amount of $0.28 per share that was paid on December 16, 2020 to shareholders of record as of December 4, 2020.

 

On January 17, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.26 per share that was paid on March 20, 2019 to shareholders of record as of March 8, 2019. On April 11, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.26 per share that was paid on June 19, 2019 to shareholders of record as of June 7, 2019. On July 11, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.27 per share that was paid on September 18, 2019 to shareholders of record as of September 6, 2019. On October 10, 2019, our Board of Directors declared a cash dividend on our common stock in the amount of $0.27 per share that was paid on December 18, 2019 to shareholders of record as of December 6, 2019.

 

On January 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that will be paid on March 17, 2021 to shareholders of record as of March 5, 2021.

 

Issuer Purchases of Equity Securities

 

On May 7, 2019, we announced that our Board of Directors had authorized a program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our stock, general market and economic conditions, our capital position, financial performance and alternative uses of capital, and applicable legal requirements. The program may be discontinued at any time.

 

During the first quarter of 2020, we repurchased a total of 222,385 shares for $6.3 million, or a weighted average all-in cost per share of $28.25. After electing to temporarily cease stock repurchases in March 2020 to preserve capital for lending and other purposes while we assessed the potential impacts of the Coronavirus Pandemic, we reinstated the repurchase program during the fourth quarter of 2020; fourth quarter repurchases totaled 14,008 shares for $0.3 million, or a weighted average all-in cost of per share of $22.05. During 2019, we repurchased a total of 233,300 shares for $7.2 million, or a weighted average all-in cost per share of $30.79. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan or a new plan, which would also likely be funded from cash dividends paid to us from our bank.

 


 

 

Period

 

(a) Total

Number of

Shares

Purchased

   

(b) Average

Price Paid

Per Share

   

(c) Total

Number of

Shares Purchased

as Part of

Publicly

Announced

Plans or

Programs

   

(d) Maximum

Number of

Shares or

Approximate

Dollar Value

that May Yet

Be Purchased

Under the

Plans or

Programs

 

October 1 – 31

    0    

NA

    $ 0     $ 10,136,000  

November 1 – 30

    14,008       22.05       14,008       9,827,000  

December 1 – 31

    0    

NA

      0       9,827,000  

Total

    14,008     $ 22.05       14,008     $ 9,827,000  

  

 Shareholder Return Performance Graph

 

Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on our common stock (based on the last reported sales price of the respective year) with the cumulative total return of the Nasdaq Composite Index and the SNL Bank Nasdaq Index from December 31, 2015 through December 31, 2020. The following is based on an investment of $100 on December 31, 2015 in our common stock, the Nasdaq Composite Index and the SNL Bank Nasdaq Index, with dividends reinvested where applicable.

 

 

chart1.jpg
 

 

 

           

Period Ending

         

Index

 

12/31/15

   

12/31/16

   

12/31/17

   

12/31/18

   

12/31/19

   

12/31/20

 

Mercantile Bank Corporation

    100.00       159.74       153.35       129.25       172.30       134.39  

NASDAQ Composite Index

    100.00       108.87       141.13       137.12       187.44       271.64  

SNL Bank NASDAQ Index

    100.00       138.65       145.97       123.04       154.47       132.56  

 

Item 6.

Selected Financial Data.

 

The Selected Financial Data in this Annual Report is incorporated here by reference.

  

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Management’s Discussion and Analysis included in this Annual Report is incorporated here by reference.

  

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

 

The information under the heading “Market Risk Analysis” included in this Annual Report is incorporated here by reference.

  

Item 8.

Financial Statements and Supplementary Data.

 

The Consolidated Financial Statements, the Notes to Consolidated Financial Statements and the Reports of Independent Registered Public Accounting Firm included in this Annual Report are incorporated here by reference.

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None

  

Item 9A.

Controls and Procedures.

 

As of December 31, 2020, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2020.

 

There have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). There are inherent limitations in the effectiveness of any system of internal control. Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to financial statement preparation.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020. This evaluation was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. Refer to page F-38 for management’s report.

 

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting which is included in this Annual Report.

  


 

 

Item 9B.

Other Information.

 

None

 

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance.

 

The information presented under the captions “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance – Code of Ethics” in the definitive Proxy Statement of Mercantile Bank Corporation for our May 27, 2021 Annual Meeting of Shareholders (the “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission before April 30, 2021, is incorporated here by reference.

 

Item 11.

Executive Compensation.

 

The information presented under the captions “Executive Compensation,” “Corporate Governance – Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Proxy Statement is incorporated here by reference.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The information presented under the caption “Stock Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated here by reference.

 

Equity Compensation Plan Information

 

The following table summarizes information, as of December 31, 2020, relating to compensation plans under which equity securities are authorized for issuance.

 

Plan Category

 

Number of

securities to be

issued upon

exercise of

outstanding

options,

warrants and

rights

   

Weighted-

average

exercise price

of outstanding

options,

warrants and

rights

   

Number of

securities

remaining

available for

future issuance

under equity

compensation

plans

(excluding

securities

reflected in

column (a))

 
   

(a)

   

(b)

   

(c)

 

Equity compensation plans approved by security holders

    9,700     $ 32.83       361,000 (1)
                         

Equity compensation plans not approved by security holders

    0       0       0  
                         

Total

    9,700     $ 32.83       361,000  

 

(1) These securities are available under the Stock Incentive Plan of 2020. Incentive awards may include, but are not limited to, stock options, restricted stock, stock appreciation rights and stock awards.

  


 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

 

The information presented under the captions “Transactions with Related Persons” and “Corporate Governance – Director Independence” in the Proxy Statement is incorporated here by reference.

  

Item 14.

Principal Accountant Fees and Services.

 

The information presented under the caption “Principal Accountant Fees and Services” in the Proxy Statement is incorporated here by reference.

 

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

 

(a) (1)     Financial Statements. The following financial statements and reports of the independent registered public accounting firm of Mercantile Bank Corporation and its subsidiaries are filed as part of this report:

 

Reports of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets --- December 31, 2020 and 2019

 

Consolidated Statements of Income for each of the three years in the period ended December 31, 2020

 

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2020

 

Consolidated Statements of Changes in Shareholders’ Equity for each of the three years in the period ended December 31, 2020

 

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020

 

Notes to Consolidated Financial Statements

 

The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, and the Reports of Independent Registered Public Accounting Firm listed above are incorporated by reference in Item 8 of this report.

 

 

(2)

Financial Statement Schedules

 

Not applicable

 

(b)     Exhibits:

 

The Exhibit Index immediately preceding the Signatures Page hereto is incorporated by reference under this item.

 

(c)     Financial Statements Not Included In Annual Report

 

Not applicable

 

Item 16.

Form 10-K Summary

 

 None.

 


 

 

 
 

MERCANTILE BANK CORPORATION

 

FINANCIAL INFORMATION

December 31, 2020 and 2019

 

  

 

 

 


 

 

MERCANTILE BANK CORPORATION

 

FINANCIAL INFORMATION

December 31, 2020 and 2019

      

CONTENTS

  

SELECTED FINANCIAL DATA

F-3

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

F-4

 

 

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-35

 

 

REPORT BY MERCANTILE BANK CORPORATION’S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 

F-38

 

 

CONSOLIDATED FINANCIAL STATEMENTS

  

 

 

CONSOLIDATED BALANCE SHEETS

F-39

 

 

CONSOLIDATED STATEMENTS OF INCOME

F-40

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

F-41

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

F-42

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

F-45

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-47

 


 

 

SELECTED FINANCIAL DATA

      

Consolidated Results of Operations:

 

2020

   

2019

   

2018

   

2017

   

2016

 
   

(Dollars in thousands except per share data)

 

Interest income

  $ 148,313     $ 158,337     $ 141,981     $ 125,543     $ 118,457  

Interest expense

    26,067       33,803       21,899       15,795       12,590  

Net interest income

    122,246       124,534       120,082       109,748       105,867  

Provision for loan losses

    14,050       1,750       1,100       2,950       2,900  

Noninterest income

    45,172       26,956       19,010       19,001       21,038  

Noninterest expense

    98,520       89,280       86,170       79,716       77,118  

Income before income tax expense

    54,848       60,460       51,822       46,083       46,887  

Income tax expense

    10,710       11,004       9,798       14,809       14,974  

Net income

  $ 44,138     $ 49,456     $ 42,024     $ 31,274     $ 31,913  
                                         

Consolidated Balance Sheet Data:

                                       
                                         

Total assets

  $ 4,437,344     $ 3,632,915     $ 3,363,907     $ 3,286,704     $ 3,082,571  

Cash and cash equivalents

    626,006       233,731       75,354       200,101       183,596  

Securities

    405,349       352,657       353,388       346,780       336,086  

Loans

    3,216,358       2,856,667       2,753,085       2,558,552       2,378,620  

Allowance for loan losses

    37,967       23,889       22,380       19,501       17,961  

Bank owned life insurance

    72,131       70,297       69,647       68,689       67,198  
                                         

Deposits

    3,411,553       2,690,384       2,463,708       2,522,365       2,374,985  

Securities sold under agreements to repurchase

    118,365       102,675       103,519       118,748       131,710  

Federal Home Loan Bank advances

    394,000       354,000       350,000       220,000       175,000  

Subordinated debentures

    47,563       46,881       46,199       45,517       44,835  

Shareholders’ equity

    441,554       416,561       375,249       365,870       340,811  
                                         

Consolidated Financial Ratios:

                                       
                                         

Return on average assets

    1.07

%

    1.39

%

    1.28

%

    1.00

%

    1.07

%

Return on average shareholders’ equity

    10.32

%

    12.52

%

    11.33

%

    8.82

%

    9.35

%

Average shareholders’ equity to average assets

    10.34

%

    11.09

%

    11.33

%

    11.28

%

    11.42

%

                                         

Nonperforming loans to total loans

    0.11

%

    0.08

%

    0.15

%

    0.28

%

    0.25

%

Allowance for loan losses to total loans *

    1.33

%

    0.84

%

    0.81

%

    0.76

%

    0.76

%

                                         

Tier 1 leverage capital

    9.77

%

    11.28

%

    11.41

%

    11.27

%

    11.17

%

Common equity risk-based capital

    11.34

%

    11.00

%

    10.41

%

    10.74

%

    10.88

%

Tier 1 risk-based capital

    12.68

%

    12.36

%

    11.80

%

    12.21

%

    12.47

%

Total risk-based capital

    13.80

%

    13.09

%

    12.50

%

    12.88

%

    13.13

%

                                         

Per Common Share Data:

                                       
                                         

Net income:

                                       

Basic

  $ 2.71     $ 3.01     $ 2.53     $ 1.90     $ 1.96  

Diluted

    2.71       3.01       2.53       1.90       1.96  
                                         

Book value per share at end of period

    27.04       25.36       22.70       22.05       20.76  

Dividends declared

    1.12       1.06       1.68       0.74       1.16  

Dividend payout ratio

    40.62

%

    34.59

%

    65.44

%

    38.52

%

    58.70

%

 

(*) Excludes Paycheck Protection Program Loans

 


 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

The following discussion and other portions of this Annual Report contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “is likely,” “plans,” “projects,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

 

Future Factors include, among others, adverse changes in interest rates and interest rate relationships; significant declines in the value of commercial real estate; market volatility; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation or actions by bank regulators; our participation in the PayCheck Protection Program administered by the Small Business Administration; changes in the method of determining Libor, or the replacement of Libor with an alternative reference rate; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; risks associated with cyber-attacks, information security breaches and other criminal activities on our computer systems; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client expectations and other facts; changes in the national and local economies, including the significant disruption to financial market and other economic activity caused by the outbreak of Covid-19; and other risk factors described in Item 1A of this Annual Report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

  

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”) is based on Mercantile Bank Corporation’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and actual results could differ from those estimates. We have reviewed the analyses with the Audit Committee of our Board of Directors.

 

Allowance For Loan Losses: The allowance for loan losses (“allowance”) is maintained at a level we believe is adequate to absorb probable incurred losses identified and inherent in the loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Loan losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results. Loans made under the Paycheck Protection Program are fully guaranteed by the Small Business Administration; therefore, such loans do not have an associated allowance.

 


 

 

We complete a migration analysis quarterly to assist us in determining appropriate reserve allocation factors for non-impaired loans. Our migration takes into account various time periods; however, at year-end 2020, we placed most weight on the period starting December 31, 2010 through December 31, 2020. We believe this period represents an appropriate range of economic conditions, and that it provides for an appropriate basis in determining reserve allocation factors given current economic conditions and the general market consensus of economic conditions in the near future. Although the migration analysis provides an accurate historical accounting of our net loan losses, it is not able to fully account for environmental factors that will also very likely impact the collectability of our loans as of any quarter-end date. Therefore, we incorporate the environmental factors as adjustments to the historical data. Environmental factors include both internal and external items. We believe the most significant internal environmental factor is our credit culture and the relative aggressiveness in assigning and revising commercial loan risk ratings, with the most significant external environmental factor being the assessment of the current economic environment and the resulting implications on our loan portfolio.

 

We established a Covid-19 reserve allocation factor to address the Coronavirus Pandemic and its potential impact on the collectability of the loan portfolio during the second quarter of 2020. The creation of this factor reflected our belief that the traditional nine environmental factors did not sufficiently capture and address the unique circumstances, challenges and uncertainties associated with the Coronavirus Pandemic, which include unprecedented federal government stimulus and interventions, statewide mandatory closures of nonessential businesses and periodic changes to such and our ability to provide payment deferral programs to commercial and retail borrowers without the interjection of troubled debt restructuring accounting rules. We review a myriad of items when assessing this new environmental factor, including virus infection rates, economic outlooks, employment data, business closures, foreclosures, payment deferments and government-sponsored stimulus programs. The Covid-19 reserve factor resulted in a $5.3 million increase to the allowance as of December 31, 2020.

 

The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual principal and interest payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Impairment is evaluated on an individual loan basis. 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 interest rate or at the fair value of collateral if repayment is expected solely from the collateral. The timing of obtaining outside appraisals varies, generally depending on the nature and complexity of the property being evaluated, general breadth of activity within the marketplace and the age of the most recent appraisal. For collateral dependent impaired loans, in most cases we obtain and use the “as is” value as indicated in the appraisal report, adjusting for any expected selling costs. In certain circumstances, we may internally update outside appraisals based on recent information impacting a particular or similar property, or due to identifiable trends (e.g., recent sales of similar properties) within our markets. The expected future cash flows exclude potential cash flows from certain guarantors. To the extent these guarantors are able to provide repayments, a recovery would be recorded upon receipt. Loans are evaluated for impairment when payments are delayed, typically 30 days or more, or when serious deficiencies are identified within the credit relationship. Our policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. We put loans into nonaccrual status when the full collection of principal and interest is not expected.

 

Financial institutions were not required to comply with the Current Expected Credit Loss (“CECL”) methodology requirements from the enactment date of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) until the earlier of the end of the President’s declaration of a National Emergency or December 31, 2020. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for an extension of the required CECL adoption date to January 1, 2022, which is the date we expect to adopt. An economic forecast is a key component of the CECL methodology. As we continue to experience an unprecedented economic environment whereby a sizable portion of the economy has been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus has been provided to businesses, individuals and state and local governments and financial institutions have offered businesses and individuals payment relief options, economic forecasts are regularly revised with no economic forecast consensus. Given the high degree of uncertainty surrounding economic forecasting, we have elected to postpone the adoption of CECL, and will continue to use our incurred loan loss reserve model as permitted.

 


 

 

Income Tax Accounting: Current income tax assets and liabilities are established for the amount of taxes payable or refundable for the current year. In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income tax laws for which the outcome may be uncertain. We periodically review and evaluate the status of our tax positions and make adjustments as necessary. Deferred income tax assets and liabilities are also established for the future tax consequences of events that have been recognized in our financial statements or tax returns. A deferred income tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences that can be carried forward (used) in future years. The valuation of our net deferred income tax asset is considered critical as it requires us to make estimates based on provisions of the enacted tax laws. The assessment of the realizability of the net deferred income tax asset involves the use of estimates, assumptions, interpretations and judgments concerning accounting pronouncements, federal and state tax codes and the extent of future taxable income. There can be no assurance that future events, such as court decisions, positions of federal and state taxing authorities, and the extent of future taxable income will not differ from our current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

 

Accounting guidance requires us to assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, we consider both positive and negative evidence and analyze changes in near-term market conditions as well as other factors that may impact future operating results. Significant weight is given to evidence that can be objectively verified.

 

Securities: Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs and other factors. Securities classified as available for sale are reported at their fair value. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating other-than-temporary losses, we consider: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) our ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Fair values for securities available for sale are generally obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the current fair value of securities is recorded as a valuation adjustment and reported in other comprehensive income.

 

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage loan prepayment speeds, the remaining life of the mortgage loan pool, delinquency rates, our cost to service loans and other factors to determine the cash flow that we will receive from servicing each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

 

Goodwill: Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed if conditions in the market place or changes in the company’s organizational structure occur. Due to current stressed economic and market conditions, we assessed goodwill for impairment as of March 31, 2020, June 30, 2020, September 30, 2020, and October 1, 2020. For March 31, 2020, we used a discounted income approach and a market valuation model, which compared the inherent value of our company to valuations of recent transactions in the market place to determine if our goodwill had been impaired. Using this quantitative methodology, we determined goodwill was not impaired as of March 31, 2020. For June 30, 2020, September 30, 2020, and October 1, 2020, we used the Step 0 methodology for which we assessed the macro and microeconomic conditions, industry and market conditions, financial performance, and our underlying stock performance. We concluded it was more likely than not our fair value was greater than its carrying amount at the end of each period; therefore, no further testing was required.

  


 

 

INTRODUCTION

 

This Management’s Discussion and Analysis should be read in conjunction with the consolidated financial statements contained in this Annual Report. This discussion provides information about the consolidated financial condition and results of operations of Mercantile Bank Corporation and its consolidated subsidiary, Mercantile Bank of Michigan (“our bank”), and of Mercantile Bank Real Estate Co., L.L.C. (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance company”), subsidiaries of our bank. Unless the text clearly suggests otherwise, references to “us,” “we,” “our,” or “the company” include Mercantile Bank Corporation and its wholly-owned subsidiaries referred to above.

 

CORONAVIRUS PANDEMIC

 

The U.S. economy deteriorated rapidly during the latter part of the first quarter and into the second quarter of 2020 due to the ongoing pandemic of coronavirus disease 2019 (“Covid-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “Coronavirus Pandemic”). While the economic fallout has stabilized somewhat, there remains a significant amount of stress and uncertainty across national and global economies. This uncertainty is heightened as certain geographic areas continue to experience surges in Covid-19 cases and governments at all levels continue to react to changes in circumstances.

 

The Coronavirus Pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a material negative impact on our financial condition and results of operations. We continue to occupy an asset-sensitive position, whereby interest rate environments characterized by numerous and/or high magnitude interest rate reductions have a negative impact on our net interest income and net income. Additionally, the consequences of the unprecedented economic impact of the Coronavirus Pandemic may produce declining asset quality, reflected by a higher level of loan delinquencies and loan charge-offs, as well as downgrades of commercial lending relationships, which may necessitate additional provisions for our allowance and reduced net income.

 

The following section summarizes the primary measures that directly impact us and our customers.

 

 

Paycheck Protection Program

The Paycheck Protection Program (“PPP”) reflects a substantial expansion of the Small Business Administration’s 100% guaranteed 7(a) loan program. The CARES Act authorized up to $350 billion in loans to businesses with fewer than 500 employees, including non-profit organizations, tribal business concerns, self-employed and individual contractors. The PPP provides 100% guaranteed loans to cover specific operating costs, with the maximum loan size capped at the lesser of 250% of the average monthly payroll costs or $10.0 million. PPP loans are eligible to be forgiven based upon certain criteria. In general, the amount of the loan that is forgivable is the sum of the payroll costs, interest payments on mortgages, rent and utilities incurred or paid by the business during a prescribed period beginning on the loan origination date. Any remaining balance after forgiveness is maintained at the 100% guarantee for the duration of the loan. The loan tenor is 24 months for loans originated prior to June 5, 2020 and 60 months for loans originated on or after June 5, 2020. Loans originated prior to June 5, 2020 can be modified to a tenor of 60 months upon the mutual agreement of the lender and borrower. We have not modified the maturity date of any loans made prior to June 5, 2020. The interest rate on the loan is fixed at 1.00%, with the financial institution receiving a loan origination fee ranging from 1% to 5% of the loan amount paid by the Small Business Administration. The loan origination fees, net of the direct origination costs, have totaled approximately $15.0 million and are being accreted into interest income on loans using the level yield methodology. The program was originally scheduled to end on June 30, 2020, but was subsequently modified to end on August 8, 2020. Participation in the PPP has had a significant impact on the composition of our loan and deposit portfolios and our net interest income starting during the second quarter of 2020, which is expected to remain well into 2021. We originated approximately 2,200 loans aggregating $554 million under the PPP, with no customer payments but $189 million in forgiveness transactions on approximately 900 PPP loans recorded through December 31, 2020.

 

Under the CARES Act, a PPP loan is assigned a risk weight of 0% under the risk-based capital rules of the federal banking agencies. On April 9, 2020, the federal banking agencies issued an interim final rule allowing financial institutions to exclude PPP loans from the average asset calculation to the degree the PPP loans are financed through the Paycheck Protection Program Lending Facility (“PPPLF”) for the Tier 1 Leverage Capital Ratio.

 


 

 

 

Individual Economic Impact Payments

The Internal Revenue Service began making Individual Economic Impact Payments in mid-April via direct deposit or mailed checks. Individuals with adjusted gross income of $75,000 or less received payments of $1,200, with a reduction formula for those individuals with adjusted gross income over $75,000 but less than $99,000. Individuals with adjusted gross income of over $99,000 did not receive a payment. Married couples filing jointly with adjusted gross income of $150,000 or less received payments of $2,400, with a reduction formula for those married couples filing jointly with adjusted gross income over $150,000 but less than $198,000. Married couples filing jointly with adjusted gross income of over $198,000 did not receive a payment.

 

 

Troubled Debt Restructuring Relief

From March 1, 2020 through 60 days after the end of the National Emergency (or December 31, 2020 if earlier), a financial institution may elect to suspend GAAP principles and regulatory determinations with respect to loan modifications related to Covid-19 that would otherwise be categorized as troubled debt restructurings. Banking agencies must defer to the financial institution’s election. We elected to suspend GAAP principles and regulatory determinations as permitted. The Consolidated Appropriations Act, 2021 extended the suspension date to January 1, 2022.

 

 

Current Expected Credit Loss Methodology Delay

Financial institutions are not required to comply with the CECL methodology requirements from the enactment date of the CARES Act until the earlier of the end of the National Emergency or December 31, 2020. We elected to postpone CECL adoption as permitted. The Consolidated Appropriations Act, 2021 extended the adoption deferral date to January 1, 2022.

 

In early April 2020, in response to the early stages of the Coronavirus Pandemic and its pervasive impact across the economy and financial markets, we developed internal programs of loan payment deferments for commercial and retail borrowers. For commercial borrowers, we offered 90-day (three payments) interest only amendments as well as 90-day (three payments) principal and interest payment deferments. Under the latter program, borrowers were extended a 12-month single payment note at 0% interest in an amount equal to three payments, with loan proceeds used to make the scheduled payments. The single payment notes receive a loan grade equal to the loan grade of each respective borrowing relationship. Certain of our commercial loan borrowers subsequently requested and received an additional 90-day (three payments) interest only amendment or 90-day (three payments) principal and interest payment deferment. Under the latter program, the amount equal to the three payments was added to the original deferment note which has nine months remaining to maturity; however, the original 0% interest rate is modified to equal the rate associated with each borrower’s traditional lending relationship with us for the remainder of the term.

 

At the peak of activity in mid-July, nearly 750 borrowers with loan balances aggregating $719 million were participating in the commercial loan deferment program. However, as of December 31, 2020, only 19 borrowers with loan balances aggregating $8.0 million remained in the commercial loan deferment program. For retail borrowers, we offered 90-day (three payments) principal and interest payment deferments, with deferred amounts added to the end of the loan. As of June 30, 2020, we had processed 260 principal and interest payment deferments with loan balances totaling $23.8 million. These payment deferral transactions largely applied to the borrowers’ April, May and June loan payments. As of December 31, 2020, only 14 borrowers with loan balances aggregating $1.8 million remained in the retail loan payment deferment program.

 

In April, 2020, the Federal Reserve initiated the PPPLF, which is designed to facilitate lending by financial institutions to small businesses under the PPP. Only PPP loans are eligible to serve as collateral for the PPPLF, with each dollar of PPP loans providing one dollar of advance availability. The maturity date of an extension of credit under the PPPLF will equal the maturity date of the pool of PPP loans pledged to secure the extension of credit. Any principal payments received by the financial institution on the PPP loans, such as PPP loan forgiveness payments from the Small Business Administration or principal payments from the borrower after the initial six-month deferment period, must be used to pay down the PPPLF advance by the same dollar amount, maintaining the dollar-for-dollar advance amount and PPP aggregate loan balance relationship. The interest rate on PPPLF advances is fixed at 0.35%. No PPPLF advances could be obtained after September 30, 2020. We obtained a PPPLF advance in the amount of $43.7 million in late April 2020 and paid it off in full in early June 2020. As of December 31, 2020, we had no advances outstanding under the PPPLF.

 


 

 

SUBSEQUENT EVENTS

 

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. This $900 billion Coronavirus Pandemic relief package includes $284 billion in aid for small businesses through a second round of forgivable loans through the PPP. In general, the framework of loans originated under the second round are similar to that of the initial round. As of February 26, 2021, we had originated about 900 loans aggregating $181 million in second round PPP loans.

 

We originated approximately 2,200 loans aggregating $554 million under the initial round of the PPP. As of December 31, 2020, we had received no customer payments but had received $189 million in forgiveness payments from the Small Business Administration on about 900 PPP loans. As of February 26, 2021, we had received no customer payments but had received $266 million in forgiveness payments from the Small Business Administration on approximately 1,400 loans.

 

As part of our bank’s branch rationalization efforts, we recently announced that our bank and Lake Trust Credit Union have entered into an agreement for the sale of our banking office located in Hastings, Michigan, with the sale expected to be consummated by March 31, 2021. The agreement includes the 4,300 square-foot facility, all associated assets and approximately $16 million in deposits.

 

FINANCIAL OVERVIEW

 

We recorded net income of $44.1 million, or $2.71 per basic and diluted share, for 2020, compared to net income of $49.5 million, or $3.01 per basic and diluted share, for 2019. The net impact of a gain on the sale of a former branch facility and write-downs of former branch facilities decreased net income during 2020 by approximately $1.1 million, or $0.07 per diluted share. Bank owned life insurance claims and the net impact of gains and losses on sales and write-downs of former branch facilities increased net income during 2019 by approximately $2.7 million, or $0.16 per diluted share. Excluding the impacts of these transactions, diluted earnings per share decreased $0.07, or 2.5%, during 2020 compared to 2019.

 

The lower level of net income during 2020 compared to 2019 resulted from higher provision expense and noninterest expense and decreased net interest income, which more than offset increased noninterest income. The loan loss reserve build during 2020, which primarily reflected increased allocations associated with changes in certain environmental factors and an allocation related to a newly-created Covid-19 pandemic environmental factor, was viewed as a precautionary measure to guard against any potential deterioration in the quality of the loan portfolio stemming from the pandemic and associated weakened economic conditions. The higher level of noninterest expense mainly reflected increased compensation, occupancy, furniture and equipment, and Federal Deposit Insurance Corporation (“FDIC”) insurance premium costs, along with increased write-downs of former branch facilities. The decline in net interest income depicted a lower yield on earning assets, which more than offset the positive impact of growth in earning assets. The improved noninterest income primarily reflected increased mortgage banking income.

 

We believe the overall quality of our loan portfolio remains strong, with nonperforming loans equaling only 0.11% of total loans as of December 31, 2020. Gross loan charge-offs during 2020 totaled $0.8 million, while recoveries of prior period loan charge-offs totaled $0.9 million, providing for net loan recoveries of $0.1 million, or 0.01% of average total loans. We continue our collection efforts on charged-off loans, and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries. Accruing loans past due 30 to 89 days remain very low.

 

Commercial loans increased $352 million during 2020, and at December 31, 2020 totaled $2.79 billion, or 86.9% of our loan portfolio. As of December 31, 2019, the commercial loan portfolio comprised 85.5% of total loans. The increase in commercial loans during 2020 primarily reflects activity under the PPP. Originations of PPP loans, primarily during the second quarter and to a lesser degree the third quarter, totaled $554 million. We started to receive PPP loan forgiveness payments from the Small Business Administration during the fourth quarter, totaling $189 million through year-end 2020 and providing for a net balance of $365 million at December 31, 2020. Excluding PPP loans, our commercial and industrial loan segment declined $66.1 million during 2020, in large part reflecting a reduction in lines of credit during the second quarter. Non-owner occupied commercial real estate (“CRE”) loans increased $82.1 million and multi-family and residential rental loans grew $21.6 million, while owner-occupied CRE loans declined $49.1 million. We believe our loan portfolio remains well diversified. As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 60.0% as of December 31, 2020, compared to 58.4% at December 31, 2019. The current commercial loan pipeline remains strong, and at year-end 2020, we had almost $100 million in unfunded loan commitments on commercial construction and development loans that are in the construction phase.

 


 

 

We experienced significant deposit growth during 2020, primarily reflecting federal government stimulus payments and reduced business and consumer investing and spending, along with PPP loan proceeds being deposited into customers’ accounts at the time the loans were originated and remaining on deposit at year-end 2020. Local deposits increased $808 million during 2020, in large part comprised of a $508 million increase in noninterest-bearing checking accounts. In addition, interest-bearing checking accounts were up $141 million, money market deposits grew $103 million and savings deposits increased $68.8 million. Brokered deposits declined $86.5 million, comprising 1.4% of total deposits at December 31, 2020 compared to 5.0% at year-end 2019.

 

We recorded a loan loss provision expense of $14.1 million during 2020, a substantial increase over the $1.8 million recorded during 2019. Approximately 80% of the provision expense recorded during 2020 is reflective of increased allocations associated with qualitative factors, namely economic conditions, loan review and value of underlying collateral dependent commercial loans, as well as the creation of a Coronavirus Pandemic environmental factor (“Covid-19 factor”). The Covid-19 factor, developed during the second quarter, is designed to address the unique challenges and economic uncertainty resulting from the Coronavirus Pandemic and its potential impact on the collectability of the loan portfolio. The provision expense recorded during 2020 also reflects the downgrading of certain non-impaired commercial loan relationships, most of which occurred during the third quarter.

 

Noninterest income during 2020 was $45.2 million, compared to $27.0 million in 2019. The significant growth primarily reflects increased mortgage banking income stemming from a sizeable upturn in refinance activity spurred by a decrease in residential mortgage loan interest rates, an increase in purchase activity, and the continuing success of strategic initiatives that have been implemented over the past several years to gain market share and increase production. Mortgage banking income totaled $29.3 million in 2020, compared to $8.5 million during 2019.

 

Noninterest expense totaled $98.5 million during 2020, compared to $89.3 million in 2019. The higher level of expense primarily resulted from increased compensation costs, mainly reflecting higher residential mortgage lender commissions and related incentives, as well as annual merit pay increases and a larger bonus accrual. Occupancy and equipment and furniture costs were up $1.7 million on a combined basis in 2020 compared to 2019, mainly reflecting the late 2019 completion of our main office expansion.

 

FINANCIAL CONDITION

 

Our total assets increased $804 million during 2020, and totaled $4.44 billion as of December 31, 2020. Total loans increased $360 million, interest-earning deposits were up $383 million and securities available for sale increased $52.7 million. Total deposits increased $721 million and FHLBI advances were up $40.0 million. Local deposit growth exceeded net loan growth, with the excess funds maintained with the Federal Reserve Bank of Chicago.

 

Earning Assets

Average earning assets equaled 94.1% of average total assets during 2020, compared to 93.4% during 2019. The loan portfolio continued to comprise a majority of earning assets, followed by interest-earning deposits and securities. Average total loans equaled 82.0% of average earning assets during 2020, compared to 85.8% in 2019, while average interest-earning deposits and average securities comprised 9.2% and 8.8% of average earning assets during 2020 and 3.4% and 10.8% during 2019, respectively.

 

Our loan portfolio has historically been primarily comprised of commercial loans. Commercial loans increased $352 million during 2020, and at December 31, 2020 totaled $2.79 billion, or 86.9% of our loan portfolio. As of December 31, 2019, the commercial loan portfolio comprised 85.5% of total loans. The increase in commercial loans during 2020 primarily reflects activity under the PPP. Originations of PPP loans, primarily during the second quarter and to a lesser degree during the third quarter, totaled $554 million. We started to receive PPP loan forgiveness payments from the Small Business Administration during the fourth quarter, totaling $189 million through year-end 2020, and providing for a net balance of $365 million as of December 31, 2020. Excluding PPP loans, our commercial and industrial loan segment declined $66.1 million during 2020, in large part reflecting a reduction in lines of credit during the second quarter. Non-owner occupied CRE loans increased $82.1 million and multi-family and residential rental loans grew $21.6 million, while owner-occupied CRE loans declined $49.1 million. We believe our loan portfolio remains well diversified. As a percentage of total commercial loans, commercial and industrial loans and owner-occupied CRE loans combined equaled 60.0% as of December 31, 2020, compared to 58.4% at December 31, 2019.

 


 

 

As of December 31, 2020, availability on commercial construction and development loans that are in the construction phase totaled almost $100 million, with most of the funds expected to be drawn over the next 12 to 18 months. Our current pipeline reports indicate strong commercial loan funding opportunities in future periods, including $228 million in new lending commitments. Our commercial lenders also report additional opportunities they are currently discussing with existing borrowers and potential new customers. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit was relatively stable during the last six months of 2020, after having declined by about $110 million during the second quarter largely reflecting the Coronavirus Pandemic and associated weakened economic conditions.

 

Residential mortgage loans increased $21.0 million during 2020, totaling $361 million, or 11.2% of total loans, at December 31, 2020. We originated $864 million in residential mortgage loans during 2020, compared to $369 million in 2019. The 135% increase is primarily attributable to a sizeable upturn in refinance activity spurred by a decrease in residential mortgage loan interest rates, an increase in purchase activity, and the continuing success of strategic initiatives that have been implemented over the past several years to gain market share and increase production. Almost 66% of the residential mortgage loans originated during 2020 consisted of refinance transactions, compared to about 50% during 2019. Residential mortgage loans originated for sale, generally consisting of longer-term fixed rate residential mortgage loans, totaled $672 million during 2020, or almost 78% of the total residential mortgage loans originated. Residential mortgage loans originated not sold are generally comprised of adjustable rate residential mortgage loans. We are very pleased with the results of our strategic initiatives associated with the growth of our residential mortgage banking operation over the past few years, and remain optimistic that origination volumes will continue to be solid in future periods.

 

Other consumer-related loans declined $13.8 million during 2020, and at December 31, 2020 totaled $61.6 million, or 1.9% of the loan portfolio. Other consumer-related loans equaled 2.6% of total loans as of December 31, 2019. We expect this loan portfolio segment to decline in future periods as scheduled principal payments exceed origination volumes.

 

The following table summarizes our loan portfolio:

 

   

12/31/20

   

12/31/19

   

12/31/18

   

12/31/17

   

12/31/16

 

Commercial:

                                       

Commercial & Industrial *

  $ 1,145,423,000     $ 846,551,000     $ 822,723,000     $ 753,764,000     $ 713,903,000  

Land Development & Construction

    55,055,000       56,119,000       44,885,000       29,873,000       34,828,000  

Owner Occupied Commercial Real Estate

    529,953,000       579,003,000       548,619,000       526,328,000       450,464,000  

Non-Owner Occupied Commercial Real Estate

    917,436,000       835,346,000       816,282,000       791,685,000       748,269,000  

Multi-Family & Residential Rental

    146,095,000       124,525,000       127,597,000       101,918,000       117,883,000  

Total Commercial

    2,793,962,000       2,441,544,000       2,360,106,000       2,203,568,000       2,065,347,000  
                                         

Retail:

                                       

1-4 Family Mortgages

    360,776,000       339,749,000       307,540,000       254,559,000       195,226,000  

Home Equity & Other Consumer Loans

    61,620,000       75,374,000       85,439,000       100,425,000       118,047,000  

Total Retail

    422,396,000       415,123,000       392,979,000       354,984,000       313,273,000  
                                         

Total Loans

  $ 3,216,358,000     $ 2,856,667,000     $ 2,753,085,000     $ 2,558,552,000     $ 2,378,620,000  

  

(*) For December 31, 2020, includes $365 million in loans originated under the Paycheck Protection Program.

 


 

 

The following table presents total loans outstanding as of December 31, 2020, according to scheduled repayments of principal on fixed rate loans and repricing frequency on variable rate loans. Floating rate loans that are currently at interest rate floors are treated as fixed rate loans and are reflected using maturity date and not repricing frequency.

 

   

Less Than

   

One Through

   

More Than

         
   

One Year

   

Five Years

   

Five Years

   

Total

 
                                 

Construction and land development

  $ 63,821,000     $ 65,689,000     $ 100,839,000     $ 230,349,000  

Real estate - residential properties

    25,966,000       153,263,000       229,874,000       409,103,000  

Real estate - multi-family properties

    4,327,000       38,373,000       45,753,000       88,453,000  

Real estate - commercial properties

    249,984,000       807,964,000       285,841,000       1,343,789,000  

Commercial and industrial

    402,245,000       643,088,000       82,387,000       1,127,720,000  

Consumer

    2,068,000       14,115,000       761,000       16,944,000  

Total loans

  $ 748,411,000     $ 1,722,492,000     $ 745,455,000     $ 3,216,358,000  
                                 

Fixed rate loans

  $ 365,124,000     $ 1,610,804,000     $ 611,366,000     $ 2,587,294,000  

Floating rate loans

    383,287,000       111,688,000       134,089,000       629,064,000  

Total loans

  $ 748,411,000     $ 1,722,492,000     $ 745,455,000     $ 3,216,358,000  

 

Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on the internal loan watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on impaired loans, as well as on foreclosed and repossessed assets, are reviewed periodically; however, we have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

 

Nonperforming assets, comprised of nonaccrual loans, loans past due 90 days or more and accruing interest and foreclosed properties, totaled $4.1 million (0.1% of total assets) as of December 31, 2020, compared to $2.7 million (0.1% of total assets) as of December 31, 2019. The volume of nonperforming assets has remained low over the past several years. Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with a relatively steady level of watch list credits and what we believe are strong credit administration practices, we are pleased with the overall quality of the loan portfolio.

 


 

 

The following tables provide a breakdown of nonperforming assets by property type:

 

NONPERFORMING LOANS

 

   

12/31/20

   

12/31/19

   

12/31/18

   

12/31/17

   

12/31/16

 

Residential Real Estate:

                                       

Land Development

  $ 35,000     $ 34,000     $ 0     $ 0     $ 16,000  

Construction

    0       0       0       0       0  

Owner Occupied / Rental

    2,519,000       2,104,000       3,157,000       3,381,000       2,739,000  
      2,554,000       2,138,000       3,157,000       3,381,000       2,755,000  
                                         

Commercial Real Estate:

                                       

Land Development

    0       0       0       35,000       95,000  

Construction

    0       0       0       0       0  

Owner Occupied

    619,000       134,000       950,000       2,241,000       285,000  

Non-Owner Occupied

    22,000       0       0       0       488,000  
      641,000       134,000       950,000       2,276,000       868,000  
                                         

Non-Real Estate:

                                       

Commercial Assets

    172,000       0       17,000       1,444,000       2,293,000  

Consumer Assets

    17,000       12,000       17,000       42,000       23,000  
      189,000       12,000       34,000       1,486,000       2,316,000  
                                         

Total

  $ 3,384,000     $ 2,284,000     $ 4,141,000     $ 7,143,000     $ 5,939,000  

  

 

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS

 

   

12/31/20

   

12/31/19

   

12/31/18

   

12/31/17

   

12/31/16

 

Residential Real Estate:

                                       

Land Development

  $ 0     $ 0     $ 0     $ 0     $ 0  

Construction

    0       0       0       0       0  

Owner Occupied / Rental

    88,000       260,000       398,000       193,000       144,000  
      88,000       260,000       398,000       193,000       144,000  
                                         

Commercial Real Estate:

                                       

Land Development

    0       0       0       0       0  

Construction

    0       0       0       0       0  

Owner Occupied

    613,000       192,000       413,000       2,031,000       325,000  

Non-Owner Occupied

    0       0       0       36,000       0  
      613,000