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Section 1: 11-K (FORM 11-K)

mbwm20170626_11k.htm Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 11-K

  

 

 

 

 

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

 

For the fiscal year ended December 31, 2016

 

OR

 

 

 

 

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

 

For the transition period from to

 

Commission File No. 000-26719

 

Mercantile Bank of Michigan

 

401(k) Plan

 

Mercantile Bank Corporation

310 Leonard Street, NW

Grand Rapids, Michigan 49504

(616) 406-3000

 

 



 
 

Table of Contents
 

 



 

REQUIRED INFORMATION

 

 

The Mercantile Bank of Michigan 401(k) Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA). In lieu of the requirements of Items 1, 2 and 3 of Form 11-K for annual reports, the financial statements and schedules of the Plan for the two years ended December 31, 2016 and 2015, which have been prepared in accordance with the financial reporting requirements of ERISA, are included in this report.

 

 



 
 

Table of Contents
 

  



 

 

 

Mercantile Bank of Michigan

401(k) Plan

 

Financial Statements

And Supplemental Schedule

Years Ended December 31, 2016 and 2015

 

 
 

Table of Contents
 

 

Mercantile Bank of Michigan 401(k) Plan

 

Contents


 

 

 

 

Report of Independent Registered Public Accounting Firm

3

 

 

 

 

Financial Statements

 

 

 

Statements of Net Assets Available for Benefits as of December 31, 2016 and 2015

4

 

 

Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2016 and 2015

5

 

 

Notes to Financial Statements

6-10

 

 

 

 

Supplemental Schedule

 

 

 

Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of  December 31, 2016

11

 

 

Exhibit List

12

 

 

Signatures

13

 

 

Exhibit Index

14

 

 

Consent of Independent Registered Public Accounting Firm

 

 

 
2

Table of Contents
 

 

Report of Independent Registered Public Accounting Firm

 

To the Plan Administrator

Mercantile Bank of Michigan 401(k) Plan

Grand Rapids, Michigan

 

We have audited the accompanying statements of net assets available for benefits of the Mercantile Bank of Michigan 401(k) Plan (the “Plan”) as of December 31, 2016 and 2015, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2016 and 2015, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying supplemental Schedule of Assets (Held at End of Year) as of December 31, 2016 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.

 

/s/ BDO USA, LLP

 

Grand Rapids, Michigan

June 28, 2017

 

 

 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

 

BDO is the brand name for the BDO network and for each of the BDO Member Firms. 

 
3

Table of Contents
 

 

Mercantile Bank of Michigan 401 (k) Plan

 

Statements of Net Assets Available for Benefits


 

 

 

December 31,

 

2016

   

2015

 
                 

Assets

               
                 

Investments, at fair value

               

Mutual funds

  $ 39,094,270     $ 37,222,474  

Mercantile Bank Corporation common stock

    18,656,297       13,863,750  

Money market fund

    1,739,766       2,267,555  
                 

Total investments

    59,490,333       53,353,779  
                 

Notes receivable from participants

    583,315       687,038  

Accrued income

    7,716       7,281  
                 

Net Assets Available for Benefits

  $ 60,081,364     $ 54,048,098  

 

See accompanying notes to financial statements.

 

 
4

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Mercantile Bank of Michigan 401(k) Plan

 

Statements of Changes in Net Assets Available for Benefits


 

 

 

Year ended December 31,

 

2016

   

2015

 
                 

Additions

               
                 

Investment income

               

Net appreciation in fair value of investments

  $ 8,761,505       127,075  

Interest and dividends

    1,515,302       2,283,790  
                 

Total investment income

    10,276,807       2,410,865  
                 

Contributions

               

Employer

    1,194,345       1,203,061  

Employee

    2,174,368       2,146,981  

Rollover

    168,716       537,074  
                 

Total contributions

    3,537,429       3,887,116  
                 

Interest from notes receivable

    26,879       36,786  
                 

Total Additions

    13,841,115       6,334,767  
                 

Deductions

               
                 

Benefits paid to participants

    7,670,541       7,471,954  

Administrative expenses

    137,308       140,823  
                 

Total Deductions

    7,807,849       7,612,777  
                 

Net increase (decrease)

    6,033,266       (1,278,010

)

                 
                 

Net Assets Available for Benefits, beginning of year

    54,048,098       55,326,108  
                 

Net Assets Available for Benefits, end of year

  $ 60,081,364     $ 54,048,098  

 

See accompanying notes to financial statements.

 

 
5

Table of Contents
 

 

Mercantile Bank of Michigan 401(k) Plan

 

Notes to Financial Statements


 

 

 

1.     Plan Description

 

The following description of Mercantile Bank of Michigan 401(k) Plan (Plan) provides only general information. Participants should refer to the Plan Agreement or Summary Plan Description for a more complete description of the Plan’s provisions.

 

General

 

The Plan was established by the Plan Sponsor, Mercantile Bank of Michigan (Bank), effective January 1, 1998. The Plan was amended and restated effective January 1, 2013. The Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA).

 

Eligibility and Enrollment

 

The Plan is a defined contribution plan covering eligible employees who have completed a minimum of one hour of service. Eligible employees can enter the Plan on the first day of the month following date of hire. For newly eligible employees, the Plan provides automatic enrollment for the employee at an amount equal to 3% of compensation, until such time as the employee elects a different percentage or elects no contributions.

 

Contributions

 

Elective deferrals by participants under the Plan provisions are based on a percentage of their compensation, subject to certain limitations as defined by the Plan Agreement. Participants may also make after tax Roth contributions, and may roll over account balances from other qualified defined benefit or defined contribution plans into their account.

 

The Bank makes safe harbor matching contributions equal to 100% of the first 4.25% of compensation deferred by each participant subject to certain limitations as specified in the Plan Document. The Bank may also make a discretionary profit sharing contribution subject to certain limitations as specified in the Plan Agreement. There were no profit sharing contributions in 2016 and 2015.

 

Participant Accounts

 

Each participant’s account is credited with the participant’s contributions, allocations of the Bank’s matching contribution and Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account. Participants may direct the investment of their account balances into various investment options offered by the Plan.

 

Vesting

 

Participants are immediately vested in their elective deferrals and all employer contributions and earnings thereon.

 

 
6

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Mercantile Bank of Michigan 401(k) Plan

 

Notes to Financial Statements


 

 

 

Notes Receivable From Participants

 

Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance. The notes are secured by the balance in the participant’s account and bear interest at rates that are commensurate with local borrowing rates. Interest rates on notes receivable outstanding as of December 31, 2016 ranged from 3.25% to 7.75%. Principal and interest is paid ratably through payroll deductions over a period not to exceed five years, unless the notes were used to purchase a primary residence, in which case the note terms shall not exceed ten years.

 

Payment of Benefits

 

Upon separation of service, death, disability or retirement, a participant or his or her beneficiary will receive a distribution of the participant’s account as a lump-sum amount. A participant may receive the portion of his or her account invested in Mercantile Bank Corporation common stock in either common shares or cash. Additionally, under certain circumstances of financial hardship, participants are allowed to withdraw funds from the Plan.

 

Administrative Expenses

 

Certain administrative expenses are paid by the Plan Sponsor. Certain fees incurred as a result of participant-directed transactions (e.g., participant loan origination and distribution fees) are charged directly to the participant’s account. A trustee fee is paid to Greenleaf Trust, which is calculated quarterly based on the market value of the Plan assets and allocated to participant accounts on a quarterly basis.

 

In July 2015, the FASB issued Accounting Standards Update 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965), (ASU 2015-12): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. This three-part update simplifies current benefit plan accounting and requires (i) fully benefit-responsive investment contracts to be measured, presented, and disclosed only at contract value and accordingly removes the requirement to reconcile their contract value to fair value; (ii) benefit plans to disaggregate their investments measured using fair value by general type, either on the face of the financial statements or in the notes to the financial statements; (iii) the net appreciation or depreciation in investments for the period to be presented in the aggregate rather than by general type, and removes certain disclosure requirements relevant to individual investments that represent five percent or more of net assets available for benefits. Further, the amendments in this update eliminate the requirement to disclose the investment strategy for certain investments that are measured using Net Asset Value (NAV) per share. These amendments are effective retrospectively for fiscal years beginning after December 15, 2015 and early adoption is permitted.  This update also provides a practical expedient to permit employee benefit plans to measure investments and investment-related accounts as of the month-end that is closest to the plan’s fiscal year-end, when the fiscal period does not coincide with a month-end, while requiring certain additional disclosures. This portion of the update is effective prospectively for fiscal years beginning after December 15, 2015 and early adoption is permitted.

  

Plan management reviewed ASU 2015-12, and decided to early adopt this standard for the Plan year ended December 31, 2015 as they believed it simplified Plan accounting and its presentation in the financial statements.  As such, the accounting and disclosures in these financial statements and notes follow ASU 2015-12. 

 

 

 
7

Table of Contents
 

 

Mercantile Bank of Michigan 401(k) Plan

 

Notes to Financial Statements


 

 

 

2.     Significant Accounting Policies

 

Basis of Accounting

 

The accompanying financial statements are prepared under the accrual method of accounting.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets and changes therein. Actual results could differ from those estimates.

 

Risks and Uncertainties

 

The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the financial statements.

 

Concentration of Credit Risk

 

At December 31, 2016 and 2015, approximately 31% and 26%, respectively, of the Plan’s assets were invested in Mercantile Bank Corporation common stock. A significant decline in the market value of the common stock would significantly affect the net assets available for benefits.

 

Investment Valuation and Income Recognition

 

The Plan’s investments are stated at fair value. Fair value is the price that would be received to sell an asset (an exit price) in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. See Note 3 for discussion of fair value measurements.

 

Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

 

Notes Receivable – Participant Loans

 

Participant loans are classified as notes receivable from participants, and are measured at the unpaid principal balance plus unpaid accrued interest. Defaulted loans, if any, are reclassified as distributions based upon the terms of the Plan Document.

 

Payment of Benefits

 

Benefits are recorded when paid.

 

 
8

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Mercantile Bank of Michigan 401(k) Plan

 

Notes to Financial Statements


 

 

 

3.     Investments

 

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Plan utilizes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are described as follows:

 

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets in active markets.

 

Level 2 - Inputs to the valuation methodology include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3 - Inputs to the valuation methodology are both significant to the fair value measurement and unobservable.

 

The following valuation methodologies were used to measure the fair value of the Plan’s investments. There have been no changes in the methodologies used at December 31, 2016 and 2015.

 

Money market and mutual funds - Valued at quoted market prices in an exchange and active market, which represent the NAV of shares held by the Plan.

 

Mercantile Bank Corporation common stock - Valued at the closing price reported on the active market on which the security is traded.

 

The Plan’s valuation methods may result in a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although Plan management believes the valuation methods are appropriate and consistent with the market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

 

The tables below set forth by level within the fair value hierarchy the Plan’s investments as of December 31, 2016 and 2015. There have been no significant transfers in or out of Levels 1, 2 or 3 in 2016 or 2015.

 

   

Investments at Fair Value

 
                                 

December 31, 2016

 

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Mutual funds

  $ 39,094,270     $ -     $ -     $ 39,094,270  

Common stock

  $ 18,656,297       -       -       18,656,297  

Money market fund

  $ 1,739,766       -       -       1,739,766  
                                 

Investments, at fair value

  $ 59,490,333     $ -     $ -     $ 59,490,333  

 

 
9

Table of Contents
 

 

Mercantile Bank of Michigan 401(k) Plan

 

Notes to Financial Statements


 

 

 

   

Investments at Fair Value

 
                                 

December 31, 2015

 

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Mutual funds

  $ 37,222,474                     $ 37,222,474  

Common stock

  $ 13,863,750                       13,863,750  

Money market fund

  $ 2,267,555                       2,267,555  
                                 

Investments, at fair value

  $ 53,353,779                 $ 53,353,779  

 

4.     Related Party Transactions

 

Parties-in-interest are defined under Department of Labor (DOL) regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer and certain other parties. Professional fees for the administration and audit of the Plan are paid by the Bank.

 

The 494,862 and 564,945 shares of Mercantile Bank Corporation common stock held by the Plan as of December 31, 2016 and 2015, respectively, represent approximately 3.01% and 3.45% of the Corporation’s outstanding shares as of December 31, 2016 and 2015, respectively.

 

Cash dividends of $584,852 and $368,702 were paid to the Plan by Mercantile Bank Corporation during 2016 and 2015, respectively.

 

5.     Plan Termination

 

Although it has not expressed any intent to do so, the Bank has the right under the Plan to terminate the Plan, subject to the provisions of ERISA.

 

6.     Tax Status

 

The Internal Revenue Service has determined and informed the Bank by a letter dated August 7, 2014 that the amended and restated Plan effective January 1, 2013 and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter; however, the Plan Administrator believes that the Plan is designed and is being operated in compliance with the applicable requirements of the IRC. The related trust, therefore, is not subject to tax under present tax law.

 

Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2016 there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there currently are no audits for any tax periods in progress.

 

 
10

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Mercantile Bank of Michigan 401(k) Plan

 

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)


 

EIN: 38-3360868

Plan Number: 001

 

December 31, 2016

             
                   

(a)

 

(b)

Identity of Issuer, Borrower, Lessor or Similar Party

 

(c)

Description of

Investment, Including

Maturity Date, Rate

of Interest, Collateral,

Par or Maturity Value

 

(d)

Cost

 

(e)

Current Value

 
                     
   

Mutual funds

               
   

Blackrock Equity Dividend Fund

 

98,907

 shares

 

**

$

2,230,350

 
   

Fidelity Advisor New Insights

 

69,794

 shares

 

**

 

1,882,335

 
   

Franklin Small Cap Value R6

 

15,664

 shares

 

**

 

896,136

 
   

Goldman Sachs Mid Cap Value Fund

 

18,419

 shares

 

**

 

682,959

 
   

Hartford International Opportunities Y

 

73,467

 shares

 

**

 

1,099,797

 
   

Prudential Jennison Small Cap Z Fund

 

30,097

 shares

 

**

 

717,816

 
   

T Rowe Price Mid Cap Growth Fund

 

13,781

 shares

 

**

 

1,038,499

 
   

Vanguard 500 Index Admiral Shares

 

16,341

 shares

 

**

 

3,375,463

 
   

Vanguard Mid Cap Index Admiral Shares

 

6,623

 shares

 

**

 

1,079,122

 
   

Vanguard Small Cap Index Admiral Shares

 

14,420

 shares

 

**

 

890,706

 
   

Delaware Emerging Market

 

26,125

 shares

 

**

 

380,117

 
                     
   

Matthews Pacific Tiger Fund

13,847

 shares

 

**

 

317,385

 
   

Vanguard Total International Index Admiral

 

43,488

 shares

 

**

 

1,071,116

 
   

T Rowe Price Balanced I Fund

 

58,500

 shares

 

**

 

621,268

 
   

T Rowe Price Personal Income Fund

 

62,585

 shares

 

**

 

1,127,157

 
   

T Rowe Price Retirement 2010 Fund

 

21,346

 shares

 

**

 

230,532

 
   

T Rowe Price Retirement 2015 Fund

 

98,736

 shares

 

**

 

1,074,244

 
   

T Rowe Price Retirement 2020 Fund

 

395,338

 shares

 

**

 

4,340,816

 
   

T Rowe Price Retirement 2030 Fund

 

621,285

 shares

 

**

 

6,908,685

 
   

T Rowe Price Retirement 2040 Fund

 

378,851

 shares

 

**

 

4,250,703

 
   

T Rowe Price Retirement 2045 Fund

 

115,008

 shares

 

**

 

1,290,389

 
   

T Rowe Price Retirement 2050 Fund

 

115,510

 shares

 

**

 

1,296,026

 
   

T Rowe Price Retirement 2060 Fund

 

1,802

 shares

 

**

 

20,071

 
                     
   

Vanguard Intermediate Term Treasury Admiral

 

41,406

 shares

 

**

 

459,195

 
   

Vanguard Short Term Treasury ADM

 

19,205

 shares

 

**

 

204,346

 
   

Vanguard Short Term Invest Grade Fund Admiral

 

41,071

 shares

 

**

 

436,580

 
   

Vanguard Total Bond Market Admiral Shares

 

110,090

 shares

 

**

 

1,172,457

 
                     
   

Total mutual funds

           

39,094,270

 
                     
   

Common stock

   

 

   

 

   

*

 

Mercantile Bank Corporation

 

494,862

 shares

 

**

 

18,656,297

 
                     
   

Money market fund

               
   

Northern Institutional Treasury Portfolio

 

1,739,766

 shares

 

**

 

1,739,766

 
                     
   

Total Investments, at Fair Value

       

$

59,490,333

 
   

 

             

*

 

Notes Receivable From Participants

 

(3.25% to 7.75%)

   

$

583,315

 

 

* A party-in-interest as defined by ERISA.

** The cost of participant-directed investments is not required to be disclosed.

 

 
11

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Exhibit to Report on Form 11-K

 

 

 

 

 

Exhibit No.

 

Exhibit Description

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm

  

 
12

Table of Contents
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustee (or other persons who administer the employee benefit plan) has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Mercantile Bank of Michigan

401(k) Plan

 

     

Date: June 28, 2017

By: /s/ Lonna L. Wiersma                 

 

 

 Lonna L. Wiersma, Plan Administrator

 

 

 

 

 
13

Table of Contents
 

 

 

 

 

 

Exhibit Index

 

 

 

Exhibit No.

 

Exhibit Description

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

14

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Section 2: EX-23.1 (EXHIBIT 23.1)

ex23-1.htm

Exhibit 23.1

 

 

Consent of Independent Registered Public Accounting Firm

 

 

 

Mercantile Bank of Michigan 401(k) Plan

Grand Rapids, Michigan

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-170026, 333-117763 and 333-152254) of our report dated June 28, 2017 relating to the financial statements and supplemental schedule of Mercantile Bank of Michigan 401(k) Plan which appears in this Form 11-K for the year ended December 31, 2016.

 

 

/s/ BDO USA, LLP

 

Grand Rapids, Michigan

June 28, 2017

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