MERCANTILE BANK CORPMBWMEarnings & Financial Report
Nasdaq
Tamilnad Mercantile Bank Limited (TMB) is an Indian bank headquartered at Thoothukudi, Tamil Nadu. TMB was founded in 1921 as the Nadar Bank, but changed its name to Tamilnad Mercantile Bank in November 1962 to widen its appeal beyond the Nadar community. The bank currently has 600 full branches throughout India, 12 regional offices and two link offices, two central processing centres, one service branch, four currency chests, 48 eLobby centres, 262 cash recycler machines and 1151 automated ...
What changed in MERCANTILE BANK CORP's 10-K — 2022 vs 2023
Top changes in MERCANTILE BANK CORP's 2023 10-K
134 paragraphs added · 155 removed · 109 edited across 4 sections
- Item 1A. Risk Factors+59 / −78 · 47 edited
- Item 1. Business+56 / −59 · 45 edited
- Item 5. Market for Registrant's Common Equity+14 / −13 · 13 edited
- Item 2. Properties+5 / −5 · 4 edited
Item 1. Business
Business — how the company describes what it does
45 edited+11 added−14 removed71 unchanged
Item 1. Business
Business — how the company describes what it does
45 edited+11 added−14 removed71 unchanged
2022 filing
2023 filing
The prioritization of our people is reflected in the robust employee benefits and compensation packages offered to our staff, including health and wellness insurance plans and incentives, a 401(k) plan with matching contributions, dedicated internship programs for young professionals in finance and business, employee stock ownership plan participation, as well as clothing, home office and fitness equipment interest-free loans.
The prioritization of our people is reflected in the robust employee benefits and compensation packages offered to our staff, including health and wellness insurance plans and incentives, a 401(k) plan with matching contributions, dedicated internship programs for young professionals in finance and business, and employee stock ownership plan participation, as well as clothing, home office and fitness equipment interest-free loans.
Climate Change We define sustainability as the leveraging of combined abilities to ensure our ongoing impact on people, the environment and our success is always focused on upholding long-lasting, positive results.
Climate Change We define sustainability as the leveraging of combined abilities to ensure our ongoing impact on people and the environment, and our success is always focused on upholding long-lasting, positive results.
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.
Our loan officers and loan managers are generally able to approve loans ranging from $0.25 million to $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.
Commercial term debt secured by non-real estate collateral are generally at a floating rate tied to the Wall Street Journal Prime Rate, 30-Day Libor Rate or 30-Day SOFR, or a fixed rate primarily equal to the commensurate cost of funds using FHLBI advance rates as a proxy and a credit spread as indicated by the credit rating we assign, and generally mature and fully amortize within three to seven years.
Commercial term debt secured by non-real estate collateral are generally at a floating rate tied to the Wall Street Journal Prime Rate or 30-Day SOFR, or a fixed rate primarily equal to the commensurate cost of funds using FHLBI advance rates as a proxy and a credit spread as indicated by the credit rating we assign, and generally mature and fully amortize within three to seven years.
The ESG Committee is a cross-functional management committee, led by the Chief Risk Officer, that assists us in: 1) setting general strategies relating to ESG matters; 2) developing, implementing and monitoring initiatives and policies based on those strategies; 3) recommending communications with employees, investors and shareholders with respect to ESG matters; and 4) monitoring and assessing developments relating to, and improving our understanding of, ESG matters.
The ESG Committee is a cross-functional management committee, led by the Chief Risk Officer, that assists us in: (1) setting general strategies relating to ESG matters; (2) developing, implementing, and monitoring initiatives and polices based on those strategies; (3) recommending communications with employees, investors, and shareholders with respect to ESG matters; and (4) monitoring and assessing developments relating to, and improving our understanding of, ESG matters.
The eStatement adoption rate continues to grow, and we were approaching 60% adoption at year-end 2022. Our online accounts payable system has also enabled us to significantly reduce paper and printing, and saves time. Every effort is made to recycle all paper, and we continue to offer community paper shredding events.
The eStatement adoption rate continues to grow, and we were approaching 60% adoption at year-end 2023. Our online accounts payable system has also enabled us to significantly reduce paper and printing, and saves time. Every effort is made to recycle all paper, and we continue to offer community paper shredding events.
Approximately 84% of our eligible employees participate in our medical benefit plans which include a health savings account plan in which we pay the full monthly premiums. We offer our employees generous paid time off for vacations, holidays, sick time and bereavement, along with pay-it-forward initiatives and paid volunteer time.
Approximately 85% of our eligible employees participate in our medical benefit plans which include a health savings account plan in which we pay the full monthly premiums. We offer our employees generous paid time off for vacations, holidays, sick time and bereavement, along with pay-it-forward initiatives and paid volunteer time.
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.
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.
Our bank’s Board of Directors may alter the bank’s investment policy without shareholder approval at any time.
Our bank’s Board of Directors may alter our bank’s investment policy without shareholder approval at any time.
All employees are required to attend and complete foundational DEI training, and regular expanded learning opportunities are provided. Throughout 2022, monthly live webinars were offered to our staff as well as recorded video access to a wide variety of DEI topics along with resources such as books, group discussions and supervisor support materials.
All employees are required to attend and complete foundational DEI training, and regular expanded learning opportunities are provided. Throughout 2023, live webinars were offered to our staff as well as recorded video access to a wide variety of DEI topics along with resources such as books, group discussions and supervisor support materials.
In further support of our inclusion efforts, we have a Diversity Council comprised of members representing diverse perspectives across departments and viewpoints. The Diversity Council is designed to bring together ideas and experiences from various backgrounds to help develop respect and an appreciation for differences among employees.
In further support of our inclusion efforts, we have a Diversity Council comprised of members representing diverse perspectives across departments and viewpoints. The Diversity Council is designed to bring together ideas and experiences from various backgrounds to nurture respect and an appreciation for differences among employees.
We believe in leading through example in our communities and are proud to be part of a cohort of 15 local companies that have adopted this evidence-based hiring process to help increase diversity in the workforce. Employee Safety and Health.
We believe in leading through example in our communities and are proud to be part of a cohort of 15 local companies that have adopted this evidence-based hiring process to help increase diversity in the workforce. 4 Table of Contents Employee Safety and Health.
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.
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.
We embrace and encourage our employees’ differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status and other characteristics that make our employees unique. 4 Table of Contents Talent Acquisition .
We embrace and encourage our employees’ differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status and other characteristics that make our employees unique. Talent Acquisition .
Allowance for Credit Losses The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and inherent in the loan portfolio.
Allowance for Credit Losses The allowance is maintained at a level we believe is adequate to absorb estimated credit losses identified and expected in the loan portfolio.
Over the past four years, we have reduced our use of natural gas by 7% and electricity by 29%. All renovation and expansion projects involve the donation of former office furniture to non-profit organizations. We continue to strive for the reduction of mail and paper usage through the promotion of customer eStatement adoption.
Over the past five years, we have reduced our use of natural gas by 29% and electricity by 39%. All renovation and expansion projects involve the donation of former office furniture to non-profit organizations. We continue to strive for the reduction of mail and paper usage through the promotion of customer eStatement adoption.
As of December 31, 2022, loans placed in nonaccrual status totaled $7.7 million, or 0.2% of total loans, compared to $2.3 million, or 0.1% of total loans, at December 31, 2021. We had no loans past due 90 days or more and still accruing interest at year-end 2022, compared to $0.2 million in such loans as of December 31, 2021.
As of December 31, 2023, loans placed in nonaccrual status totaled $3.4 million, or 0.1% of total loans, compared to $7.7 million, or 0.2% of total loans, at December 31, 2022. We had no loans past due 90 days or more and still accruing interest at year-end 2023 or 2022.
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.
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 established profitable histories and satisfactory tenant structures.
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. Human Capital As of December 31, 2022, we employed 601 full-time and 68 part-time persons.
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. Human Capital As of December 31, 2023, we employed 631 full-time and 34 part-time persons.
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. Our expenses have generally been paid using cash dividends from our bank.
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.
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.
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.
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.
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.
Additionally, we have implemented recycling stations at all of our office locations to divert cardboard, plastic and metal items from landfills.
Additionally, we have implemented recycling stations at all of our office locations to divert cardboard, plastic and metal items from landfills. Water bottle refill stations also aid to reduce plastic bottle usage.
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.
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. 8 Table of Contents Investments Bank Holding Company Investments .
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.
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.
Other funds of our bank holding company may be invested from time to time in various debt instruments.
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.
Regulation and Supervision Banks and bank holding companies, like many other financial institutions, are regulated under a variety of federal and state statutes and the regulations that implement those statutes.
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, like many other financial institutions, are regulated under a variety of federal and state statutes and the regulations that implement those statutes.
Using a risk-based approach to selecting credits for review, our loan review program covered approximately 62% of total commercial loans outstanding during 2022. In addition, a random sampling of retail loans is reviewed each quarter.
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 69% of total commercial loans outstanding during 2023. In addition, a random sampling of retail loans is reviewed each quarter.
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. 7 Table of Contents 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.
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.
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.
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.
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 .
MCP invests as a limited liability member in real estate entities engaged in community development. Our bank holding company has no plans at this time to make directly any other types of equity investments at the bank holding company level. Our Board of Directors may, however, alter the investment policy at any time without shareholder approval.
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.
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.
As of December 31, 2022, outstanding balances on loans tied to the 30-Day Libor Rate aggregated $368 million. 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.
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.
Water bottle refill stations also aid to reduce plastic bottle usage. 5 Table of Contents Our Environmental, Social and Governance (“ESG”) Committee supports our ongoing commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability and other public policy matters relevant to our organization.
Our Environmental, Social, and Governance ("ESG") Committee supports our ongoing commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to our organization.
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.
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.
Commercial term debt secured by real estate are generally at a floating rate tied to the Wall Street Journal Prime Rate, 30-Day Libor Rate or 30-Day SOFR.
In most instances, commercial line of credit facilities have terms ranging from 12 to 24 months with floating rates tied to the Wall Street Journal Prime Rate or 30-Day Secured Overnight Funding Rate (“SOFR”). Commercial term debt secured by real estate are generally at a floating rate tied to the Wall Street Journal Prime Rate or 30-Day SOFR.
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.
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. Our bank has a home equity line of credit program.
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 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 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.
Courier service is provided to certain commercial customers, and safe deposit boxes 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.
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.
Total commercial real estate loans (as defined in the guidance) represented 247% of total regulatory capital as of both December 31, 2023 and 2022, with both ratios being below the maximum guideline of 300%. 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.
Our bank makes secured and unsecured commercial, construction, mortgage and consumer loans, and accepts checking, savings and time deposits. Our bank owns 20 automated teller machines ("ATM") and 21 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 owns 17 automated teller machines ("ATM") and 27 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.
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, as well as residential mortgage loan production offices in Midland and Petoskey, Michigan and in the Cincinnati, Ohio metropolitan area.
We also have banking offices located in the metropolitan Detroit, Michigan area, Traverse City, Michigan, Saginaw, Michigan, and Midland, Michigan, as well as a residential mortgage loan production office in Petoskey, Michigan. Our bank makes secured and unsecured commercial, construction, mortgage and consumer loans, and accepts checking, savings and time deposits.
Our bank’s deposits are insured to the maximum extent permitted by law by the Federal Deposit Insurance Corporation (“FDIC”). Our bank, through its 46 office locations, provides commercial banking services primarily to small- to medium-sized businesses and retail banking services.
Our bank, through its 43 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.
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. 6 Table of Contents In most instances, commercial line of credit facilities have a term ranging from 12 to 24 months with a floating rate tied to the Wall Street Journal Prime Rate, 30-Day London Interbank Offered Rate (“Libor”) or 30-Day Secured Overnight Funding Rate (“SOFR”).
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.
The Vendor and Supplier Code of Conduct, along with our Environmental Policy, DEI Policy, Human Rights Policy, and the Supplier Diversity Program Policy, are reviewed and approved by our Board of Directors annually. These polices are available on our website, along with an application for diverse suppliers.
These and our other policies (including our Vendor and Supplier Code of Conduct, Environmental Policy, Diversity, Equity and Inclusion Policy, Human Rights Policy, and Supplier Diversity Program Policy), are reviewed and approved by our Board of Directors at least annually and can be found on our website. 5 Table of Contents Lending Policy As a routine part of our business, we make loans to businesses and individuals located within our market areas.
Removed
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.
Added
Mercantile Community Partners ("MCP"), our subsidiary, began operations during 2023 to invest in community development tax credit investments. 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.
Removed
The ESG Committee met four times during 2022. Highlights for 2022 included the enhancement of our online financial wellness tools, the rollout of the MercStart Fresh deposit program, the development of a diverse vendor database for employee use and the creation of a Vendor and Supplier Code of Conduct.
Added
Highlights for 2023 included establishing Mercantile Community Partners LLC to facilitate low-income housing tax credits, hiring a full-time Director of Learning to better develop our employees, engaging a new provider to improve our ESG data gathering and reporting, incorporating a member of our bank’s Young Professional resource group as a member of the ESG Committee, and rolling out a new Green Mortgage Lending Program to support homeowners looking to make environmentally sustainable home improvements.
Removed
Also during 2022, we moved Board of Director oversight of ESG matters from the Audit Committee to the Governance Committee. The meetings were well attended. Lending Policy As a routine part of our business, we make loans to businesses and individuals located within our market areas.
Added
Our bank also developed a Clawback Policy; an Insider Trading Policy; Corporate Governance Guidelines; an Anti-Bribery and Anti-Corruption Policy; and an Anti-Money Laundering, Bank Secrecy Act, Customer Identification and Due Diligence Programs Letter.
Removed
Effective January 1, 2022, we replaced the 30-Day Libor Rate with 30-Day SOFR for all new and renewing floating rate commercial loans and commitments. Commercial loans tied to the 30-Day Libor Rate outstanding on June 30, 2023 will convert to an equivalent fallback SOFR Rate.
Added
We have no material foreign loans, and only limited exposure to companies engaged in energy producing and agricultural-related activities. 6 Table of Contents Commercial Real Estate loans.
Removed
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.
Added
Commercial real estate loans, consisting of non-owner occupied, owner occupied, multi-family and residential rental, and vacant land, land development, and residential construction totaled 50.2% and 49.7% of our total loans as of December 31, 2023 and 2022, respectively.
Removed
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments . This ASU (as subsequently amended by ASU 2018-19) significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.
Added
We also adhere to the FDIC’s commercial real estate lending concentration guidelines specified in the Joint Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices .
Removed
This standard replaced the “incurred loss” approach with an “expected loss” model. Referred to as the current expected credit loss (“CECL”) model, it applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. The standard also expanded disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance.
Added
Risks of repayment can arise from general downward shifts in the valuations of specific property types often driven by changes in demand and other economic factors, which could further influence cash flows associated with the borrower and/or the underlying property. To mitigate these risks, we actively monitor market conditions in the markets we originate loans.
Removed
In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.
Added
The majority of our commercial real estate portfolio is located within our primary geographic footprint within the state of Michigan. As of December 31, 2023 and 2022, 90.3% and 92.3% of our commercial real estate loans were for projects located within the state of Michigan.
Removed
This ASU was effective for interim and annual reporting periods beginning after December 15, 2019. 8 Table of Contents Financial institutions were not required to comply with the 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.
Added
Loans made outside the state of Michigan are usually to customers located or headquartered within our footprint doing business in other states.
Removed
The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. An economic forecast is a key component of the CECL methodology.
Added
The following table presents the composition of the commercial real estate portion of the total loan portfolio as of December 31, 2023 and 2022: (Dollars in thousands) December 31, 2023 December 31, 2022 Balance % Balance % Real estate – owner occupied Industrial $ 347,923 8.1 % $ 292,835 7.5 % Automotive 117,076 2.7 118,638 3.0 Office 72,498 1.7 67,379 1.7 Retail 46,202 1.1 37,960 1.0 Medical Office 34,641 0.8 30,627 0.8 Restaurants 30,482 0.7 25,946 0.7 Other 68,845 1.6 65,807 1.6 Subtotal 717,667 16.7 639,192 16.3 Real estate – non-owner occupied Office 271,448 6.3 324,227 8.3 Retail 256,338 6.0 230,796 5.9 Industrial 233,503 5.4 190,119 4.9 Assisted Living 131,426 3.1 103,514 2.6 Hotel 100,594 2.3 89,517 2.3 Other 42,375 1.0 41,041 1.0 Subtotal 1,035,684 24.1 979,214 25.0 Vacant land, land development, and residential construction 74,753 1.7 61,873 1.6 Real estate – multi-family and residential rental 332,609 7.7 266,468 6.8 Total $ 2,160,713 50.2 % $ 1,946,747 49.7 % 7 Table of Contents Single-Family Residential Real Estate Loans.
Removed
As we continued to experience an unprecedented economic environment whereby a sizable portion of the economy had been significantly impacted by government-imposed activity limitations and similar reactions by businesses and individuals, substantial government stimulus was provided to businesses, individuals and state and local governments and financial institutions offered businesses and individuals payment relief options, economic forecasts were regularly revised with no economic forecast consensus.
Added
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.
Removed
Given the high degree of uncertainty surrounding economic forecasting, we elected to postpone the adoption of CECL until January 1, 2022, and continued to use our incurred loan loss reserve model as permitted through December 31, 2021.
Removed
We adopted CECL effective January 1, 2022 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2022, are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards.
Removed
The transition adjustment of the CECL adoption included a decrease in the allowance of $0.4 million, and a $0.3 million increase to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $0.1 million tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
47 edited+12 added−31 removed98 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
47 edited+12 added−31 removed98 unchanged
2022 filing
2023 filing
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.
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.
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. 13 Table of Contents 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.
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 time frames for review of applications may limit the number and frequency of transactions we may be able to consummate. 13 Table of Contents 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.
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.
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 credit losses based on several factors.
Overall, the ongoing Coronavirus Pandemic has caused a sustained global economic slowdown of varying durations across different industries, and it is possible that it could still cause a global recession.
Overall, the Coronavirus Pandemic has caused a sustained global economic slowdown of varying durations across different industries, and it is possible that it could still cause a global recession.
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. 18 Table of Contents We face the risk of cyber-attack to our computer systems.
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. 17 Table of Contents We face the risk of cyber-attack to our computer systems.
Physical risk refers to results of severe weather, such as floods, hurricanes, rising sea levels, fires and water availability. Indirect risk refers to how changes in regulation, conscious consumer choices, competition for sustainable products, and reduced demand for goods or services that produce significant green-house gas emissions may have on the results and operations of a company.
Physical risk refers to results of severe weather, such as floods, hurricanes, rising sea levels, fires and water availability. Indirect risk refers to how changes in regulation, conscious consumer choices, competition for sustainable products, and reduced demand for goods or services that produce significant green-house gas emissions may impact the results and operations of a company.
In addition, inflationary pressures may increase our operational costs and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans which could negatively affect our financial performance. 11 Table of Contents We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.
In addition, inflationary pressures may increase our operational costs and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans which could negatively affect our financial performance. We principally manage interest rate risk by managing the volume and mix of our earning assets and funding liabilities.
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.
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. 19 Table of Contents 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.
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. Direct and indirect effects of climate change may adversely affect us.
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. 14 Table of Contents Direct and indirect effects of climate change may adversely affect us.
Deteriorating economic and political conditions caused by the ongoing Coronavirus Pandemic, such as increased unemployment, decreased capital spending, declines in consumer confidence and economic slowdowns or recessions, have caused and could continue to cause a decrease in demand for our products and services.
Deteriorating economic and political conditions caused by the Coronavirus Pandemic, such as widespread inflation, increased unemployment, decreased capital spending, declines in consumer confidence and economic slowdowns or recessions, have caused and could continue to cause a decrease in demand for our products and services.
Approximately 62% of our total commercial loans, or about 50% 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.
Approximately 63% of our total commercial loans, or about 50% of our total loans, relate to commercial real estate. Stressed economic conditions may reduce the value of commercial real estate and strain the financial conditions of our commercial real estate borrowers, especially in the land development and non-owner occupied commercial real estate segments of our loan portfolio.
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.
Remote working of employees 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.
Furthermore, a severe or prolonged economic downturn, including a recession or depression resulting from the ongoing Coronavirus Pandemic or political disruption, such as the war between Ukraine and Russia or political conflict between China and Taiwan, could result in a variety of risks to our business, including weakened demand for our products and services as well as our ability to raise additional capital if needed on acceptable terms.
Furthermore, a severe or prolonged economic downturn, including a recession or depression resulting from the Coronavirus Pandemic or political disruption, such as the Ukraine-Russia and Israel-Hamas wars or political conflict between China and Taiwan, could result in a variety of risks to our business, including weakened demand for our products and services as well as our ability to raise additional capital if needed on acceptable terms.
We may need to raise additional capital in the future, and such capital may not be available when needed or at all.
Regulatory Risks We may need to raise additional capital in the future, and such capital may not be available when needed or at all.
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. 19 Table of Contents Regulatory Risks We are subject to significant government regulation, and any regulatory changes may adversely affect us.
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. We are subject to significant government regulation, and any regulatory changes may adversely affect us.
Because SOFR is published by the FRBNY based on data received from other sources, we have no control over its determination, calculation or publication. There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in SOFR-linked instruments.
Because SOFR is published by the Federal Reserve Bank of New York ("FRBNY") based on data received from other sources, we have no control over its determination, calculation or publication. There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in SOFR-linked instruments.
For additional information, see “Critical Accounting Estimates” beginning on page F-3 of this Annual Report and “Note 1 – Summary of Significant Accounting Policies” beginning on page F-41 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.
For additional information, see “Critical Accounting Estimates” beginning on page F-3 of this Annual Report and “Note 1 – Summary of Significant Accounting Policies” beginning on page F-40 of this Annual Report. 16 Table of Contents We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.
For nearly the past three years, the ongoing Coronavirus Pandemic and efforts to control its spread have significantly impacted the movement of people, goods and services worldwide, including in most of or all of the regions in which we offer our services and conduct our business operations.
For nearly the past four years, the Coronavirus Pandemic and efforts to control its spread and economic effect have significantly impacted the movement of people, goods and services worldwide, including in most of or all of the regions in which we offer our services and conduct our business operations.
These risks include, but are not limited to, the following: ● Increased loan losses or other impairments in our loan portfolios and increases in our allowance for credit losses, ● Collateral for loans, especially real estate, may decline in value, which could cause an increase in loan losses, ● Limitations may be placed on our ability to foreclose on properties we hold as collateral, ● Our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which would adversely affect our net income, ● The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us, ● FDIC premiums may increase if the agency experiences additional resolution costs, ● Litigation arising from our participation in the Small Business Administration’s Paycheck Protection Program, ● Unanticipated unavailability of employees, ● Increased cybersecurity risks as employees work remotely, ● A triggering event leading to impairment testing on our goodwill or core deposit and customer relationships intangibles, which could result in an impairment charge, and ● A prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets.
The risks we may face include, but are not limited to, the following: o Increased loan losses or other impairments in our loan portfolios and increases in our allowance for credit losses, o Collateral for loans, especially real estate, may decline in value, which could cause an increase in loan losses, o Limitations may be placed on our ability to foreclose on properties we hold as collateral, o Our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which would adversely affect our net income, o The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us, o FDIC premiums may increase if the agency experiences additional resolution costs, o Litigation arising from our participation in the Small Business Administration’s Paycheck Protection Program, o Unanticipated unavailability of employees, o Prolonged inflation and monetary policy designed to combat inflation may inhibit growth, o A triggering event leading to impairment testing on our goodwill, which could result in an impairment charge, and o A prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets.
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.
There can be no assurance that declines in market value associated with these disruptions will not result in a loss in principal value of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.
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.
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.
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.
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.
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.
The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services, such as those related to artificial intelligence, automation and algorithms. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.
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.
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.
Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CME Term SOFR Rate for all new floating rate commercial loan commitments. It is expected that currently outstanding commercial loans tied to the 30-Day Libor Rate will convert to an equivalent fallback SOFR Rate on or about June 30, 2023.
Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CME Term SOFR Rate for all new floating rate commercial loan commitments. On or about June 30, 2023, all commercial loans tied to the 30-Day Libor Rate converted to an equivalent fallback SOFR Rate.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.
Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.
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. 17 Table of Contents Damage to our reputation could materially harm our business.
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 and loss of brand equity may reduce demand for our products and services and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and could also reduce our stock price.
Damage to our reputation and loss of brand equity may reduce demand for our products and services and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and could also reduce our stock price. 15 Table of Contents Changes in SOFR could adversely affect the amount of interest that accrues on SOFR-linked instruments.
Further, there is uncertainty around the accounting standards and climate-related disclosures associated with emerging laws and reporting requirements and the related costs to comply with the emerging regulations. 15 Table of Contents Our failure or perceived failure to achieve our ESG goals, maintain ESG practices or comply with emerging ESG regulations that meet evolving regulatory or stakeholder expectations could harm our reputation, adversely impact our ability to attract and retain customers and talent and expose us to increased scrutiny from the investment community and enforcement authorities.
Our failure or perceived failure to achieve our ESG goals, maintain ESG practices or comply with emerging ESG regulations that meet evolving regulatory or stakeholder expectations could harm our reputation, adversely impact our ability to attract and retain customers and talent and expose us to increased scrutiny from the investment community and enforcement authorities.
The unanticipated loss of our executive officers, or any of our other senior managers, could have an adverse effect on our growth and performance. 14 Table of Contents In addition, we continue to depend on our key commercial loan officers.
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.
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, financial condition or results of operations.
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, financial condition or results of operations. 18 Table of Contents 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.
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.
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.
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.
Thus, we may, in the course of our activities, incur losses. 12 Table of Contents We may not be able to successfully adapt to evolving industry standards and market pressures. Our success depends, in part, on our ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices.
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.
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.
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. We are subject to extensive capital regulations imposed by federal and state banking regulations. These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized” institution.
We are subject to extensive capital regulations imposed by federal and state banking regulations. These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized” institution.
If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected. Unfavorable global economic, geopolitical conflicts and other political conditions could adversely affect our business, financial condition or results of operations.
Unfavorable global economic, geopolitical conflicts and other political conditions could adversely affect our business, financial condition or results of operations. Our results of operations could be adversely affected by general conditions in the global economy, the global financial markets and global political conditions.
Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the ongoing Coronavirus Pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material. 10 Table of Contents Although many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time.
Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the Coronavirus Pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.
If the FOMC further increases the targeted federal funds rate, overall interest rates will likely continue to rise, which will likely positively impact our net interest income but may negatively impact both the housing market by reducing refinancing activity and new home purchases and the U.S. economy.
Generally speaking, increases in the targeted federal funds rate positively impact our net interest income. In contrast, higher interest rates generally have a negative impact on both the housing market, by reducing refinancing activity and new home purchases, and the U.S. economy.
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.
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.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. In March 2015, federal regulators issued two related statements regarding cybersecurity.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. Cybersecurity risks and disclosures are increasingly regulated by various government agencies, including federal and state bank regulatory agencies and the Securities and Exchange Commission.
Our results of operations could be adversely affected by general conditions in the global economy, the global financial markets and global political conditions. The United States and global economies are facing high levels of inflation, higher interest rates and potential recession.
The United States and global economies are facing high levels of inflation, higher interest rates and potential recession.
In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
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 Changes in interest rates may reduce our net interest income, may result in higher defaults in a rising rate environment and may hurt our earnings and asset value.
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.
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.
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.
As a result, our business, financial condition, or results of operations may be adversely affected. Global pandemics may impact our business, financial condition and results of operations, the scope and duration of which would be highly uncertain and dependent on factors that are outside of our control.
Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve has significantly increased the target range for the federal funds rate by hundreds of basis points. As it seeks to control inflation without creating a recession, the FOMC has indicated further increases are to be expected in 2023.
From March 2022 through July 2023, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve significantly increased the target range for the federal funds rate by hundreds of basis points. Beginning in July 2023, those rates plateaued, however, they have not been reduced as some observers have predicted.
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. 20 Table of Contents There can be no assurance that capital will be available on acceptable terms or at all.
There can be no assurance that capital will be available on acceptable terms or at all.
The severity, magnitude and duration of the ongoing Coronavirus Pandemic is hard to predict due to uncertainty surrounding severity and transmission rates of new variants and rate of public acceptance and efficacy of vaccines and other treatments.
The severity, magnitude and duration of the secondary impacts from the Coronavirus Pandemic are hard to predict.
Removed
We may not be able to respond to the impacts of the ongoing Coronavirus Pandemic on a timely basis to prevent near- or long-term adverse impacts on our results of operations.
Added
If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected. 10 Table of Contents We are subject to liquidity risk. Our banking operations require liquidity to meet our deposit and debt obligations as they come due.
Removed
Although the immediate impacts of the Coronavirus Pandemic have been assessed and mitigated, the ultimate extent of the impact of this ongoing pandemic, including as a result of possible subsequent outbreaks of Coronavirus or new variants thereof and measures taken in response therein, will depend on future developments, which remain highly uncertain and cannot currently be predicted.
Added
There are many potential factors that could reduce our access to liquidity sources, including rising interest rates, tightening fiscal policy, a downturn in the U.S. economy, difficult credit markets or adverse regulatory actions. Our access to deposits may also be affected by the liquidity needs of our depositors.
Removed
Given the ongoing dynamic nature of variants of the Coronavirus, it is difficult to predict the full impact of the ongoing Coronavirus Pandemic outbreak on our business.
Added
A substantial majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days' notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.
Removed
As the result of the ongoing Coronavirus Pandemic and the related adverse local and national economic consequences, we could be subject to a number of risks, any of which could have a material, adverse effect on our business, financial condition, liquidity and cash flow, results of operations, ability to execute our growth strategy and ability to pay cash dividends.
Added
We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.
Removed
Changes in interest rates may reduce our net interest income, may result in higher defaults in a rising rate environment and may hurt our earnings and asset value. Our earnings and cash flows are largely dependent upon our net interest income.
Added
Our access to deposits may be negatively impacted by, among other factors, periods of low interest rates or higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options.
Removed
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. 12 Table of Contents Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
Several of our commercial loan officers are responsible, or share responsibility, for generating and managing a significant portion of our commercial loan portfolio.
Added
Furthermore, as we and other regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely.
Removed
The adoption of the Secured Overnight Funding Rate may adversely affect interest income or expense, and may be more volatile than other benchmark or market interest rates.
Added
As of December 31, 2023, approximately 49% of our deposits were uninsured, and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Removed
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.
Added
Those difficulties could adversely affect us and could produce losses and other adverse effects on our business. 11 Table of Contents Market volatility may adversely affect us. The capital and credit markets may experience volatility and disruption.
Removed
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.
Added
Global pandemics create significant volatility, uncertainty and economic disruption to the global economy and may further impact our business, financial condition and results of operations.
Removed
That rate, now referred to as 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. On April 3, 2018, the Federal Reserve Bank of New York (“FRBNY”) began publishing three new reference rates, including SOFR.
Added
Further, there is uncertainty around the accounting standards and climate-related disclosures associated with emerging laws and reporting requirements and the related costs to comply with the emerging regulations.
Removed
SOFR is observed and backward-looking, which stands in contrast with Libor under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.
Added
In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. Failure to successfully manage technological changes could have a material adverse effect on our business, financial condition and results of operations.
Removed
Given the SOFR is a secured rate backed by government securities, it is a rate that does not take into account bank credit risk (as is the case with Libor). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.
Removed
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.
Removed
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.
Removed
In November 2020, the ICE Benchmark Administration announced a consultation regarding the cessation of the publication of Libor.
Removed
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.
Removed
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.
Removed
The ICE Benchmark Administration concluded the consultation on its intent to cease publication of one-week and two-month U.S. dollar Libor on December 31, 2021 and to extend the publication of all remaining U.S. dollar Libor tenors until June 30, 2023 for legacy contracts.
Removed
The FRBNY, who originally started publishing SOFR, states that it obtains information from DTCC Solutions LLC, an affiliate of DTCC. FRBNY currently publishes SOFR daily on its website at https://apps.newyorkfed.org/markets/autorates/sofr.
Removed
FRBNY states that use of SOFR is subject to important disclaimers, limitations and indemnification obligations, including that FRBNY may alter the methods of calculations, publication schedule, rate revision practices or availability of SOFR at any time without notice.
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Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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2022 filing
2023 filing
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 eleven that are rented under various operating lease agreements.
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 ten that are rented under various operating lease agreements.
Item 2. Properties. Our headquarters is located in our bank’s main office facility in Grand Rapids, Michigan. Our bank operates 46 banking offices primarily concentrated throughout Western and Central Michigan, most of which are full-service facilities.
Item 2. Properties. Our headquarters is located in our bank’s main office facility in Grand Rapids, Michigan. Our bank operates 43 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 residential mortgage loan production offices in Midland and Petoskey, Michigan and the Cincinnati, Ohio metropolitan area. We have larger banking facilities in Kalamazoo, Lansing, Mt. Pleasant and West Branch.
We also have banking offices located in the metropolitan Detroit, Michigan area, Traverse City, Michigan, Saginaw, Michigan, and Midland, Michigan, as well as a residential mortgage loan production office in Petoskey, Michigan. We have larger banking facilities in Kalamazoo, Lansing, Mt. Pleasant and West Branch.
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.
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.
Removed
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, Michigan.
Added
In addition, certain functions operate out of our standalone facility located in Alma, Michigan. We consider our properties and equipment to be well maintained, in good operating condition and capable of accommodating current growth forecasts.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
13 edited+1 added−0 removed13 unchanged
2022 filing
2023 filing
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.
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. Our ability to pay dividends to our shareholders depends primarily on our bank’s ability to pay dividends to us.
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 $ 6,818,000 November 1 – 30 0 NA 0 6,818,000 December 1 – 31 0 NA 0 6,818,000 Total 0 $ NA 0 $ 6,818,000 24 Table of Contents 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, 2017 through December 31, 2022.
(d) Maximum Number of (c) Total Shares or Number of Approximate Shares Dollar Value Purchased that May Yet as Part of Be (a) Total Publicly Purchased Number of (b) Average Announced Under the Shares Price Paid Plans or Plans or Period Purchased Per Share Programs Programs October 1 – 31 0 $ NA 0 $ 6,818 November 1 – 30 0 NA 0 6,818 December 1 – 31 0 NA 0 6,818 Total 0 $ NA 0 $ 6,818 24 Table of Contents 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 KBW Nasdaq Bank Index from December 31, 2018 through December 31, 2023.
On January 12, 2023, our Board of Directors declared a cash dividend on our common stock in the amount of $0.33 per share that will be paid on March 15, 2023 to shareholders of record as of March 3, 2023.
On January 12, 2023, our Board of Directors declared a cash dividend on our common stock in the amount of $0.33 per share that was paid on March 15, 2023 to shareholders of record as of March 3, 2023.
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, 2023, there were approximately 1,200 record holders of our common stock.
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 February 29, 2024, there were approximately 1,200 record holders of our common stock.
Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Mercantile Bank Corporation 100.00 84.26 112.35 87.59 117.18 116.19 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 KBW Bank NASDAQ Index 100.00 82.29 112.01 100.46 138.97 109.23
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Mercantile Bank Corporation 84.26 112.35 87.59 117.18 116.19 173.48 NASDAQ Composite Index 97.16 132.81 192.47 235.15 158.65 236.17 KBW NASDAQ Bank Index 82.29 112.01 100.46 138.97 109.23 131.57
The following is based on an investment of $100 on December 31, 2017 in our common stock, the Nasdaq Composite Index and the SNL Bank Nasdaq Index, with dividends reinvested where applicable.
The following is based on an investment of $100 on December 31, 2018 in our common stock, the Nasdaq Composite Index and the KBW Nasdaq Bank Index, with dividends reinvested where applicable.
On July 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that was paid on September 15, 2021 to shareholders of record as of September 3, 2021.
On July 13, 2023, our Board of Directors declared a cash dividend on our common stock in the amount of $0.34 per share that was paid on September 13, 2023 to shareholders of record as of September 1, 2023.
High Low Dividend 2022 First Quarter $ 40.01 $ 34.93 $ 0.31 Second Quarter 36.04 30.10 0.31 Third Quarter 39.03 29.26 0.32 Fourth Quarter 36.36 30.02 0.32 2021 First Quarter $ 34.47 $ 26.75 $ 0.29 Second Quarter 33.41 29.65 0.29 Third Quarter 33.18 28.51 0.30 Fourth Quarter 37.33 32.13 0.30 22 Table of Contents Holders of our common stock are entitled to receive dividends that the Board of Directors may declare from time to time.
High Low Dividend 2023 First Quarter $ 37.00 $ 29.39 $ 0.33 Second Quarter 31.56 23.89 0.33 Third Quarter 36.73 26.95 0.34 Fourth Quarter 41.93 30.12 0.34 2022 First Quarter $ 40.01 $ 34.93 $ 0.31 Second Quarter 36.04 30.10 0.31 Third Quarter 39.03 29.26 0.32 Fourth Quarter 36.36 30.02 0.32 22 Table of Contents Holders of our common stock are entitled to receive dividends that the Board of Directors may declare from time to time.
On April 15, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.29 per share that was paid on June 16, 2021 to shareholders of record as of June 4, 2021.
On April 13, 2023, our Board of Directors declared a cash dividend on our common stock in the amount of $0.33 per share that was paid on June 14, 2023 to shareholders of record as of June 2, 2023.
On October 14, 2021, our Board of Directors declared a cash dividend on our common stock in the amount of $0.30 per share that was paid on December 15, 2021 to shareholders of record as of December 3, 2021.
On October 12, 2023, our Board of Directors declared a cash dividend on our common stock in the amount of $0.34 per share that was paid on December 13, 2023 to shareholders of record as of December 1, 2023.
The program may be discontinued at any time. No shares were repurchased during 2022. Historically, stock repurchases 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.
The program may be discontinued at any time. No shares were repurchased during 2022 or 2023. Historically, stock repurchases have been funded from cash dividends paid to us from our bank.
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 was paid on March 17, 2021 to shareholders of record as of March 5, 2021.
On January 11, 2024, our Board of Directors declared a cash dividend on our common stock in the amount of $0.35 per share that will be paid on March 13, 2024 to shareholders of record as of March 1, 2024.
As of December 31, 2022, repurchases aggregating $6.8 million were available to be made under the current repurchase program. 23 Table of Contents Repurchases made during the fourth quarter of 2022 are detailed in the table below.
As of December 31, 2023, repurchases aggregating $6.8 million were available to be made under the current repurchase program. 23 Table of Contents Repurchases made during the fourth quarter of 2023 are detailed in the table below. Maximum number of shares or approximate dollar value that may yet be purchased under the plans or programs is presented in thousands.
Added
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.