July 2, 2013
John P. Nolan
Senior Assistant Chief Accountant
Securities and Exchange Commission
Washington, D.C. 20549
| Re: | Mercantile Bank Corporation |
Form 10-K for the Year Ended December 31, 2012
Filed March 14, 2013
File No. 000-26719
Dear Mr. Nolan:
On behalf of Mercantile Bank Corporation (the “Company”), I write to respond to the comments contained in your letter to the Company dated June 19, 2013, related to the above-referenced report. For your ease of reference, your comment, followed by the Company’s response is set forth below.
FORM 10-K FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2012
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition, page F-7
Commission Comment:
| 1. | Please provide us with and revise in future filings, the nonperforming assets table on page F-11, to separately disclose nonaccrual loans and other real estate owned by property type for each of the periods presented. Please also disclose the amount of both performing and nonperforming troubled debt restructurings for the periods presented as well. We reference Item III C. of Statistical Guide 3. |
Company Response:
We have provided the requested information regarding nonperforming assets and performing and nonperforming troubled debt restructurings in the attachedExhibit A. In future filings we will revise the nonperforming assets table to separately disclose nonaccrual loans and other real estate owned by property type for each of the periods presented. In future filings, we will also disclose the amount of both performing and nonperforming troubled debt restructurings for the periods presented.
| 310 LEONARD ST. NW | GRAND RAPIDS, MI 49504 | 616.406.3000 | FAX 616.726.1203 |
www.mercbank.com
Commission Comment:
| 2. | Further, the table which addresses the reconciliation of nonperforming assets on page F-11 should be revised in future filings, to present the activity for nonperforming loans and other real estate owned separately for the periods presented. |
Company Response:
As requested, we will revise the table which addresses the reconciliation of nonperforming assets to present the activity for nonperforming loans and other real estate owned separately for the periods presented in future filings.
Commission Comment:
| 3. | Please provide us and revise in future filings, to also include the coverage ratio of the allowance for loan losses to nonperforming loans for each of the periods presented. |
Company Response:
We have provided the requested information regarding the coverage ratio of the allowance for loan losses to nonperforming loans in the attachedExhibit B. We will also include the coverage ratio of the allowance for loan losses to nonperforming loans for each of the periods presented in future filings.
Notes to Consolidated Financial Statements
Note 3 – Loans and Allowance for Loan Losses, page F-71
Commission Comment:
| 4. | Please provide us and revise in future filings to address the following as it relates to troubled debt restructurings: |
| • | Revise to include a rollforward of activity for troubled debt restructurings for each period presented; and |
| • | Disclose the amount of any allowance for loan loss allocated to these loans for the periods presented. |
Company Response:
We have provided the requested information regarding troubled debt restructurings in the attachedExhibit C. We will also include the requested information for the periods presented in future filings.
2
We have included the requested acknowledgement as Addendum 1. We trust that this response satisfactorily addresses your comments. However, should you have any further questions, comments or concerns regarding this response, please contact the undersigned via phone at (616) 726-1202 or email at CChristmas@MercBank.com.
| Sincerely, |
| MERCANTILE BANK CORPORATION |
/s/ Charles Christmas |
| Charles Christmas |
| Chief Financial Officer and Treasurer |
Enclosure
3
Addendum 1
In connection with the Company’s response to the Staff’s letter of June 19, 2013 containing the Staff’s comments regarding the Form 10-K for the fiscal period ended December 31, 2012, filed on March 14, 2013, the Company acknowledges that:
| • | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
| • | staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
| • | the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
| MERCANTILE BANK CORPORATION |
/s/ Charles Christmas |
| Charles Christmas |
| Chief Financial Officer and Treasurer |
Exhibit A
NONPERFORMING LOANS
| 12/31/12 | 12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | ||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||
Land Development | $ | 1,188,000 | $ | 1,179,000 | $ | 11,775,000 | $ | 13,852,000 | $ | 12,910,000 | ||||||||||
Construction | 319,000 | 686,000 | 1,037,000 | 10,229,000 | 11,040,000 | |||||||||||||||
Owner Occupied / Rental | 4,321,000 | 6,018,000 | 9,149,000 | 6,399,000 | 2,800,000 | |||||||||||||||
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| 5,828,000 | 7,883,000 | 21,961,000 | 30,480,000 | 26,750,000 | ||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||
Land Development | 737,000 | 1,661,000 | 2,044,000 | 2,509,000 | 1,163,000 | |||||||||||||||
Construction | 0 | 409,000 | 0 | 1,268,000 | 0 | |||||||||||||||
Owner Occupied | 2,577,000 | 8,133,000 | 11,629,000 | 14,463,000 | 5,440,000 | |||||||||||||||
Non-Owner Occupied | 9,093,000 | 23,914,000 | 25,428,000 | 26,747,000 | 10,811,000 | |||||||||||||||
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| 12,407,000 | 34,117,000 | 39,101,000 | 44,987,000 | 17,414,000 | ||||||||||||||||
Non-Real Estate: | ||||||||||||||||||||
Commercial Assets | 734,000 | 3,060,000 | 8,221,000 | 9,583,000 | 5,109,000 | |||||||||||||||
Consumer Assets | 1,000 | 14,000 | 161,000 | 0 | 30,000 | |||||||||||||||
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| 735,000 | 3,074,000 | 8,382,000 | 9,583,000 | 5,139,000 | ||||||||||||||||
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Total | $ | 18,970,000 | $ | 45,074,000 | $ | 69,444,000 | $ | 85,050,000 | $ | 49,303,000 | ||||||||||
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OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS
| 12/31/12 | 12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | ||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||
Land Development | $ | 1,174,000 | $ | 4,300,000 | $ | 2,772,000 | $ | 5,870,000 | $ | 1,363,000 | ||||||||||
Construction | 157,000 | 711,000 | 1,296,000 | 1,874,000 | 0 | |||||||||||||||
Owner Occupied / Rental | 491,000 | 1,120,000 | 305,000 | 1,094,000 | 1,360,000 | |||||||||||||||
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| 1,822,000 | 6,131,000 | 4,373,000 | 8,838,000 | 2,723,000 | ||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||
Land Development | 52,000 | 450,000 | 410,000 | 462,000 | 1,071,000 | |||||||||||||||
Construction | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Owner Occupied | 957,000 | 2,509,000 | 3,111,000 | 5,455,000 | 1,055,000 | |||||||||||||||
Non-Owner Occupied | 4,139,000 | 6,192,000 | 8,781,000 | 11,670,000 | 3,244,000 | |||||||||||||||
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| 5,148,000 | 9,151,000 | 12,302,000 | 17,587,000 | 5,370,000 | ||||||||||||||||
Non-Real Estate: | ||||||||||||||||||||
Commercial Assets | 0 | 0 | 0 | 175,000 | 25,000 | |||||||||||||||
Consumer Assets | 0 | 0 | 0 | 8,000 | 0 | |||||||||||||||
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| 0 | 0 | 0 | 183,000 | 25,000 | ||||||||||||||||
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Total | $ | 6,970,000 | $ | 15,282,000 | $ | 16,675,000 | $ | 26,608,000 | $ | 8,118,000 | ||||||||||
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A-1
TROUBLED DEBT RESTRUCTURINGS
| 12/31/12 | 12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | ||||||||||||||||
Performing | $ | 38,148,000 | $ | 26,155,000 | $ | 12,263,000 | $ | 2,988,000 | $ | 0 | ||||||||||
Nonperforming | 12,612,000 | 14,508,000 | 19,050,000 | 33,017,000 | 0 | |||||||||||||||
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Total | $ | 50,760,000 | $ | 40,663,000 | $ | 31,313,000 | $ | 36,005,000 | $ | 0 | ||||||||||
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A-2
Exhibit B
| 12/31/12 | 12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | ||||||||||||||||
Ratio of allowance to nonperforming loans | 151.17 | % | 81.05 | % | 65.33 | % | 56.29 | % | 54.98 | % | ||||||||||
B-1
Exhibit C
Activity for loans categorized as troubled debt restructurings for the year-ended December 31, 2012 is as follows:
| Commercial and Industrial | Commercial Vacant Land, Land Development, and Residential Construction | Commercial Real Estate – Owner Occupied | Commercial Real Estate – Non-Owner Occupied | Commercial Real Estate – Multi-Family and Residential Rental | ||||||||||||||||
Commercial Loan Portfolio: | ||||||||||||||||||||
Beginning Balance | 4,575,000 | 5,078,000 | 6,183,000 | 12,037,000 | 12,626,000 | |||||||||||||||
Charge-Offs | (489,000 | ) | (63,000 | ) | (421,000 | ) | (695,000 | ) | (2,116,000 | ) | ||||||||||
Payments | (2,635,000 | ) | (1,966,000 | ) | (3,314,000 | ) | (1,668,000 | ) | (7,328,000 | ) | ||||||||||
Transfers to ORE | (45,000 | ) | 0 | (65,000 | ) | (1,045,000 | ) | (186,000 | ) | |||||||||||
Additions | 1,281,000 | 0 | 1,733,000 | 29,043,000 | 86,000 | |||||||||||||||
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Ending Balance | $ | 2,687,000 | $ | 3,049,000 | $ | 4,116,000 | $ | 37,672,000 | $ | 3,082,000 | ||||||||||
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| Retail Home Equity and Other | Retail 1-4 Family Mortgages | |||||||
Retail Loan Portfolio: | ||||||||
Beginning Balance | $ | 0 | $ | 164,000 | ||||
Charge-Offs | 0 | 0 | ||||||
Payments | 0 | (10,000 | ) | |||||
Transfers to ORE | 0 | 0 | ||||||
Additions | 0 | 0 | ||||||
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Ending Balance | $ | 0 | $ | 154,000 | ||||
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C-1
Activity for loans categorized as troubled debt restructurings for the year-ended December 31, 2011 is as follows:
| Commercial and Industrial | Commercial Vacant Land, Land Development, and Residential Construction | Commercial Real Estate – Owner Occupied | Commercial Real Estate – Non-Owner Occupied | Commercial Real Estate – Multi-Family and Residential Rental | ||||||||||||||||
Commercial Loan Portfolio: | ||||||||||||||||||||
Beginning Balance | 850,000 | 10,459,000 | 2,589,000 | 9,330,000 | 8,085,000 | |||||||||||||||
Charge-Offs | (850,000 | ) | (2,429,000 | ) | 0 | (1,195,000 | ) | (21,000 | ) | |||||||||||
Payments | 0 | (2,900,000 | ) | (2,477,000 | ) | (3,613,000 | ) | (329,000 | ) | |||||||||||
Transfers to ORE | 0 | (5,130,000 | ) | 0 | 0 | 0 | ||||||||||||||
Additions | 4,575,000 | 5,078,000 | 6,071,000 | 7,515,000 | 4,891,000 | |||||||||||||||
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Ending Balance | $ | 4,575,000 | $ | 5,078,000 | $ | 6,183,000 | $ | 12,037,000 | $ | 12,626,000 | ||||||||||
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| Retail Home Equity and Other | Retail 1-4 Family Mortgages | |||||||
Retail Loan Portfolio: | ||||||||
Beginning Balance | $ | 0 | $ | 0 | ||||
Charge-Offs | 0 | 0 | ||||||
Payments | 0 | 0 | ||||||
Transfers to ORE | 0 | 0 | ||||||
Additions | 0 | 164,000 | ||||||
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Ending Balance | $ | 0 | $ | 164,000 | ||||
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C-2
The allowance related to loans categorized as troubled debt restructurings was as follows:
| December 31, 2012 | December 31, 2011 | |||||||
Commercial: | ||||||||
Commercial and industrial | $ | 772,000 | $ | 514,000 | ||||
Vacant land, land development, and residential construction | 713,000 | 1,672,000 | ||||||
Real estate – owner occupied | 1,116,000 | 1,418,000 | ||||||
Real estate – non-owner occupied | 9,751,000 | 1,773,000 | ||||||
Real estate – multi-family and residential rental | 745,000 | 5,855,000 | ||||||
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Total commercial | 13,097,000 | 11,232,000 | ||||||
Retail: | ||||||||
Home equity and other | 0 | 0 | ||||||
1-4 family mortgages | 0 | 0 | ||||||
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Total retail | 0 | 0 | ||||||
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Total related allowance | $ | 13,097,000 | $ | 11,232,000 | ||||
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C-3